Routine Accounting -
Adjustments
BY: GROUP 2
Objectives of Learning
Identify and understand the different routine
accounting - adjustments.
Recognize the importance of these adjustments
in preparing accurate financial statements.
Apply these adjustments when creating
financial statements in accounting.
ROUTINE ACCOUNTING - ADJUSTMENTS
Accounting adjustments
adjustments and the
the correction
correctionof of
errors are crucial processes to ensure a company's
financial statements accurately reflect its financial
position and performance.
They adhere to the accrual basis of
accounting, which recognizes
revenues when earned and expenses
when incurred, regardless or when cash
changes hands.
ROUTINE ACCOUNTING - ADJUSTMENTS
It is made at the end of an accounting
period to ensure that revenues
and expenses are recognized
in the correct period.
Company Revenue Percentage
ACCRUED EXPENSES
These are expenses that
have already happened,
but the company has
not paid or recorded
them yet by the end of
the accounting period.
HOW TO RECORD
To record expenses incurred but not yet paid:
✅ Debit the Expense account
✅ Credit the Liability account
To record the payment of accrued expenses:
✅ Debit the Liability account
✅ Credit the Cash account
EXAMPLE
Your employees work for the last two weeks
of December, but your company's payday is
in early January. Even though you have not
payed them yet, the company has incurred
the expense of their labor in December.
ACCRUED INCOME
Accrued income (or accrued revenue) is
income that a company has earned
but has not yet received payment
for. The service or goods have
been delivered, but the cash
has not come in.
HOW TO RECORD
To record income earned but not yet received:
✅ Debit the Asset account (like Accrued Interest Receivable).
✅ Credit the Revenue Account.
To record the receipt of accrued income:
✅ Debit the Cash Account.
✅ Credit the Asset Account.
EXAMPLE
Your company invests PhP 100,000.00 in a 30-
day, 12% time deposit with Bank X on December
21. By December 31, 10 days of interest have
been earned, but the bank won't pay the
interest until the deposit matures.
CALCULATION
PhP 100,000.00 × 12% × (10/360)
= PhP 333.33
FORMULA
PREPAID EXPENSES
These are expenses that a
company has paid for in
advance but has not yet
fully used or consumed.
While still unused, they Once they are used,
are recorded as assets. they become expenses.
HOW TO RECORD
To record the advanced payment:
✅ Debit Prepaid Expense
✅ Credit Cash
To record expense used monthly:
✅ Debit Expense
✅ Credit Prepaid Expense
EXAMPLE
A company pays ₱120,000.00 for 6 months of
advance rent. This payment covers future periods.
EXAMPLE
• At the end of each month, the company uses 1/6 of
the prepaid rent. (1 month out of 6 months)
To compute the monthly expense used:
___________
Amount of Prepaid Expense
= Monthly Expense Used
Number of Months
EXAMPLE
To compute the monthly rent expense:
___________ =
Amount of Prepaid Expense
Monthly Expense Used
Number of Months
_________
₱ 120,000.00
= Monthly Expense Used
6 MONTHS
₱ 20,000.00 = Monthly Expense Used
EXAMPLE
UNEARNED / DEFERRED INCOME
What is it?
It is money that a company
gets (before) it gives the
product or service.
Why is it important?
Because the company still owes something to the
customer. It shows this as a promise (liability) until
the work is done.
HOW TO RECORD
When money is received:
✅ The company says, "We owe this to the
customer" (liability)
When the product/service is given:
✅ The company says, "Now we earned this
money" (revenue).
EXAMPLES
• Paying for a magazine subscription before
getting the magazines.
• Buying tickets before the concert happens.
• Paying rent before the month starts.
WHY FOLLOW THIS?
✅ To show the right money
earned at the right time
and keep the company’s
money records correct.
DEPRECIATION
• A Decrease in value of
tangible fixed assets over time
• Caused by wear and
tear, usage, and obsolescence
• A way to allocate the cost of an
asset over its useful life.
DEPRECIATION
Why is Depreciation Important?
• Matches asset cost to the revenue it generates
(matching principle).
• Provides realistic asset values on financial statements.
• Helps businesses plan for asset replacement.
• Impacts net income and tax calculations.
DEPRECIATION
Causes of Depreciation
• Physical wear and tear (e.g., machinery,
vehicles).
• Passage of time.
• Technological obsolescence.
• Depletion of natural resources.
METHODS OF DEPRECIATION
• Straight-Line Method
- Equal expense each year.
• Declining Balance Method
- Higher expense in early years.
• Units of Production Method
- Based on the usage or ouput.
DEPRECIATION
Straight-Line Method Formula:
Straight-Line Depreciation = (Asset Cost-Salvage Value)/Useful Life
Example:
Asset Cost = ₱100,000
Salvage Value = ₱10,000
Useful Life = 5 years
Depreciation = ₱18,000 per year
DEPRECIATION
Journal Entry for Depreciation Entry:
Recorded at the end of the
accounting period at the of the
accounting period.
DEPRECIATION
Effect on Financial Statements
• Income Statement: Increases expenses -> reduces
net income.
• Balance Sheet: Reduces book value of assets via
Accumulated Depreciation.
• Cash Flow Statement: Non-cash expense (added
back in operating activities).
DOUBTFUL ACCOUNTS
Doubtful Accounts
Doubtful Accounts (or bad debts) represent
the estimated portion of accounts receivable
that a company believes will not be collected
from customers. This adjustments adheres to
the matching principle, as it recognizes the
expense of uncollectible accounts in the same
period as the related sales revenue.
HOW TO RECORD (doubtful accounts)
1. Estimate Bad Debt
• At period-end, estimate
uncollectible accounts using
methods like:
- Percentage of sales - Aging of receivables
HOW TO RECORD (doubtful accounts)
2. Record the Allowance
• Create a Journal entry:
Debit: Bad Debt Expense
Credit: Allowance for Doubtful Accounts
This contra-asset reduces Accounts Receivable
without affecting gross sales.
HOW TO RECORD (doubtful accounts)
3. Adjust Periodically
• Update the allowance based on
revised estimates.
• Only record the change (increase
or decrease) from the previous
allowance.
HOW TO RECORD (doubtful accounts)
4. Write Off Actual Bad Debts
When a debt is confirmed uncollectible:
Debit: Allowance for Doubtful Accounts
Credit: Accounts Receivable
This reduces both accounts but doesn’t affect
income again.
EXAMPLE
A company has total sales of PhP 100,000.00
for the year, and it estimates that 2% of
these sales will be uncollectible.
CALCULATION
PhP 100,000.00 × 2% = PhP 2,000.00
THANK
YOU!
Company Revenue Percentage
