Refers to any length of time in
which the life of the business is
divided. It may be monthly,
quarterly, semi-annually or
annually.
To reflect proper amounts of
revenues realized and expenses
incurred during a period
To show fair measure of the
assets, liabilities and owner’s
equity
Expiration of prepaid expenses
Realization of income collected in
advance
Accrual of expenses
Accrual of income
Provision for bad debts
Provision for depreciation
Prepaid expenses
Time of payment –
Asset
As it is used – Expense
ASSET METHOD
On November 1, 2019, Santos paid P30,000
for a 3-month rental of the office space.
ENTRY MADE:
Nov 1 Prepaid Rent P30,000
Cash P30,000
ADJUSTING ENTRY:
Dec 31 Rent Expense P20,000
Prepaid Rent P20,000
EXPENSE METHOD
On November 1, 2019, Santos paid P30,000
for a 3-month rental of the office space.
ENTRY MADE
Nov 1 Rent Expense P30,000
Cash P30,000
ADJUSTING ENTRY:
Dec 31 Prepaid Rent P10,000
Rent Expense P10,000
INCOME METHOD
On Nov 1, 2019, the business received
P30,000 cash from the tenant of the vacant
space for 3 mos.
ENTRY MADE:
Nov 1 Cash P30,000
Rent Income P30,000
ADJUSTING ENTRY:
Dec 31 Rent Income P10,000
Unearned Rent P10,000
LIABILITY METHOD
On Nov 1, 2019, the business received
P30,000 cash from the tenant of the vacant
space for 3 mos.
ENTRY MADE:
Nov 1 Cash P30,000
Unearned Rent P30,000
ADJUSTING ENTRY:
Dec 31 Unearned Rent P20,000
Rent Income P20,000
Office employees are paid every two weeks.
On December 31, five days’ salary of an
office employee at P300 per day was
accrued.
ADJUSTING ENTRY:
Dec 31 Salaries Expense P1,500
Accrued Salaries P1,500
A tenant occupying the right side of the shop
is two months indebted. His monthly rental
is P5,000 per month.
ADJUSTING ENTRY:
Dec 31 Accrued Rent Income P10,000
Rent Income P10,000
Bad Debts Expense – loss from
uncollectible accounts
Allowance for Bad Debts – a
deduction from Accounts Receivable
Bad Debts Expense P 300
Allowance for Bad Debts P 300
Illustration:
Accounts Receivable P 1,000
Less: Allowance for Bad Debts 300
Net Realizable Value P 700
1. The allowance for bad debts is increased
by 10% of accounts receivable.
Accounts receivable = P 70,000
Bad debt estimate: P70,000 x .10 = P7,000
Adj. Entries
Bad Debts Expense P7,000
Allowance for Bad Debts P7,000
2. The allowance for bad debts is increased to
10% of accounts receivable.
Bad debt estimate: P70,000 x. 10 = P7,000
P7,000 – P 5,000 = P 2,000
Bad Debts Expense P2,000
Allowance for Bad Debts P2,000
The value of fixed assets decrease
over time due to:
1. Wear and tear from operations
2. Inadequacy and obsolescence
The cost of the fixed asset is
allocated to the duration or number
of years of its useful life.
Original Cost – Salvage Value
Depreciation = Useful Life
A delivery truck was purchased for
P250,000. It is estimated to last 10 years
after which it shall have a value of
P50,000.
Depreciation
– an expense account
Accumulated Depreciation
– contra asset account, deducted from
the related asset account which was
depreciated.
Depreciation for a Fractional Period
On May 1, 2019, a furniture was
purchased for P48,000. The asset is
estimated to have 10 years of useful life.
D = P48,000 – 0
10 yrs
= P 4,800 per year
If depreciation per year is P4,800.00, then
monthly depreciation is P400.00.
P 4,800 / 12 months = P400/month
If depreciation per month is P400, then the
total depreciation for the year 2019 is
P3,200.00
P400/mo. X 8 mos. (May – December
2019) = P3,200.00
ADJUSTING ENTRY:
Depreciation Expense-Furniture P3,200
Accumulated Depreciation P 3,200
– Furniture
A. 3% of the accounts
receivables, P75,000, has an
allotted bad debts.
B. Prepaid rent, P50,000,
represents four (4) months
starting October 1, 2013
C. 45% of the
supplies are still on
hand.
D. Transportation
vehicle, P435,000, has
7% depreciation per
annum-purchased
March 1, 2013.
E. Furniture and
Fixtures, P165,000, has
a 4.5% depreciation per
annum, purchased
December 1, 2013.
F. Equipment and Utensils,
P116,000, has an
estimated useful life of 10
years with P5,000 scrap
value, purchased February
1, 2013.
G. Accounts receivable,
P75,000, has an interest
rate of 12% per annum
due on November 10,
2013.
H. Accrued expenses are:
Wages Expense P3,500
Utilities Expense P2,500
Seatwork : Exercise 2.11
Letter A only. Basic
Accounting for High School,
Page 228. ANSWER FOR
10 MINUTES ONLY
