ANALYSIS AND NATURE OF ACCOUNTS
NATURAL/NORMAL BALANCES (SAN NAG IINCREASE)
DEBIT CREDIT
Assets Liability
Expenses Equity
Drawals Revenue
Assets - ari-arian mo
Liability - utang MO
Equity - tira ng Assets pagkatapos tanggalin ang Liability (aka NET ASSETS)
Revenues - kita ng business
Drawals
Expenses - gastusin ng business (NOT NECESSARILY BAYAD; as long as
nagamit/expired/incurred)
ACCOUNTING EQUATION
ASSETS = Liabilities + Equity
ASSETS - LIABILITIES = EQUITY
DOUBLE-ENTRY BOOKKEEPING - composed of a minimum of 1 debit and a minimum of 1
credit
SIMPLE ENTRY - 1 dr, 1 cr
Invested 100,000 cash to the business
Cash 100,000
xxx, Capital 100,000
COMPOUND ENTRY - 2 or more dr, 2 or more cr
Bought a computer worth 30,000 paying 10,000 cash and balance due after 6 months with
10% interest.
Equipment 30,000
Cash 10,000
Accounts Payable 20,000
Rendered services on account customers 5,000
Accounts Receivable 5,000
Service revenue 5,000
Billed customers 5,000
Accounts receivable 5,000
Service revenue 5,000
Bought a vehicle (use service vehicle title) 150,000 signing a note with 5% interest, due for
10 months.
Service vehicle 150,000
Notes Payable 150,000
Performed services to customers signing a note to pay it a month after the service date,
10,000.
Notes Receivable 10,000
Service revenue 10,000
METHOD OF RECOGNITION
Asset method/Accrual method - recognize it as an ASSET
Expense method - recognize it as an EXPENSE
EXAMPLE
01/01/2020
paid rent, 120,000 good for 1 year.
Adjustments
Journal Entry Effects
(September 30, 2020)
(120k * 9/12) PR RE
Asset Pre. rent 120k Rent Expense 90k 120k -
method
Cash 120k Prepaid rent 90k (90k) 90k
Balance (as of Sept. 30, 2020) PR- prepaid rent; RE- rent expense 30k 90k
(120k * 3/12)
Expens Rent exp 120k Pre rent 30k - 120k
e
method Cash 120k Rent Expense 30k 30k (30k)
30k 90k
ANALYSIS
Journal entry Adjustments
asset method Recognize it as Asset Recognize the EXPIRED PORTION
Expense method Recognize as Expense Recognize the UNUSED PORTION
In the end, and aftereffects, after footing the adjustments, same lang ang amount kahit
expense or asset method pa yan.
Pinagkaiba is aling portion ang gagamitin sa adjustments.
OPO nakeCREDIT ang expense PAG ADJUSTMENT at PAG EXPENSE METHOD
ADJUSTMENTS
1. Know the method of recognition.
2. Date kung kelan sya rinecognize (Journal entry)
3. Reporting period
NOTE IN ADJUSTING
1. Periodicity Principle
2. Going Concern
3. Accrual Basis
CASES OF ADJUSTMENTS
PREPAID EXPENSES (asset method)
● Prepaid Rent
● Prepaid advertising
● Prepaid insurance
WHEN MAKING A WORKSHEET
List in
Assets
Liab
Capital
Drawals
Revenue
Expenses
Order
Note:
1. Alamin kung gano ang tagal ni assets.
2. Alamin ang reporting period.
EXAMPLE
Jan. 1 Entity acquired rent 120,000 good for 12 months.
Prepaid rent 120,000
Cash 120,000
Prepare worksheet for month, June 30 of the same year.
Entries:
1. Recognize the expense.
2. Derecognize the asset.
3. (expired portion/total)
Computation: 6/12 * 120,000 = 60,000.
6- Jan-Jun 30 (expired portion)
12 - 12 months ang tagal ng asset
Rent Expense 60,000
Prepaid rent 60,000
SUPPLIES (asset method)
NOTE FOR ADJUSTMENTS
1. Know the total
2. Know the used/unused portion.
HOW MUCH IS THE USED PORTION (EXPENSED)
July 4 Paid advertising 5000.
Prepaid Advertising 5,000
Cash 5,000
July 30 The prepaid advertising is good for 5 month. (5,000 * ⅕)
Advertising Expense 1,000
Prepaid Advertising 1,000
July Paid rent 20,000.
Prepaid rent 20,000
Cash 20,000
July 30 The prepaid rent is good for 5 months. (20,000 * ⅕)
Rent Expense 4,000
Prepaid Rent 4,000
July Acquired Supplies 6,000.
Supplies 6,000
Cash 6,000
July 30 Supplies on hand amounted to 1440. (initial 6,000; tira 1440; gamit 4,560)
Supplies Expense 4,560
Supplies 4,560
July 30 supplies used amounted to 4,560.
Supplies Expense 4,560
Supplies 4,560
July Acquired Equipment 120,000 on account.
Equipment 120,000
AP 120,000
July 30 Equipment has a 10 yr useful life with no salvage value
(Amount-Salvage Value)/Useful life
(120,000-0)/10 years
12,000 per year/12
1,000/ month
Depreciation Expense 1,000
Accumulated Depreciation 1,000
