Examples of Events that need Adjusting Entries

1. The computer equipment of P100,000 is estimated to have a useful life of 5 years. It was
decided that a one-month depreciation for December should be provided.

2. As of December 31, the Internet and communication incurred but not yet paid amounted to
P4,000.

3. Water and power amounted to P5,000 was incurred during December but still unpaid as of
December 31.

4. It was determined that the actual cost of unused computer supplies at the end of year is
amounted to P45,000.

5. It was discovered that Internet services worth P66,000 provided to customers on account were
erroneously recorded as P6,000. Furthermore, printing services worth P50,000 earned and
received on cash were also erroneously omitted in the journal and ledger.

6. An interest of 16% per annum on P100,000 loan from the bank granted on December 12, has
accrued.

7. During December, Mr. Santos actually paid P20,000 for the four months of rental fees
covering December to March. Only the P5,000 rent payment for December was recorded.

8. Mr. Santos did not record the one-year insurance he paid in cash on December 1 worth
P12,000 covering 12 month period from December 1, 2011 to November 30, 2012.

9. Mr. Santos has determined that he has an additional taxes and licenses payable as of December
31 amounted to P5,000, which is due on or before January 20 of the next year.

10. The 2011 income tax due and payable after personal deduction amounted to P75 (only
estimated for the purpose of this example).

Adjusting Journal Entries

The following are the adjusting entries based on the above examples. Amounts in the left side
represent debit entries, while amounts in the right side represent credit entries.

AJE #1
Depreciation expense P 1,667
Accumulated depreciation P 1,667
To record depreciation expense for the month of December (P100,000/5years/12months)
AJE #2
Internet and communication expense P4,000
Accrued expense P4,000
To record Internet and communication accrued as of December 31, 2011

AJE #3
Water and power expense P5,000
Accrued expense P5,000
To record water and power expense accrued as of the end of accounting period

AJE#4
Computer supplies expense P2,000
Unused computer supplies P2,000
To correct balance of unused computer supplies as of December 31, 2011 (P47,000 – 45,000 =
P2,000)

AJE#5
Cash P50,000
Accounts receivable 60,000
Internet service income P60,000
Printing service income 50,000

To correct erroneous recording of Internet service income on account, reflecting the P60,000
that was erroneously omitted (P66,000 – 6,000 = 60,000) and to record omitted P50,000
printing service income on cash.

AJE#6
Interest expense P844
Accrued expense P844
To accrue interest expense for 19 days – Dec 12- Dec 31
[(P100,000×16%/360)x19days=P844.44]

AJE#7
Prepaid rent P15,000
Cash P15,000
To record the unexpired rental fees paid (January to March with P5,000 each month).
Remember that the P5,000 rent payment for the month of December was already recorded
correctly during that month.

AJE#8
Insurance expense P1,000
Prepaid insurance 11,000
Cash P 12,000
To record payment of insurance and the corresponding expense for the month of December
(P12,000 x 1/12 = P1,000)
AJE#9
Taxes and licenses P5,000
Accrued expense P5,000
To accrue taxes and licenses as of December 31, 2011.

AJE#10
Income tax expense P75
Income tax payable P75
To record 2011 income tax due and payable

Those adjusting journal entries are recorded just like regular transactions in the journal. The
entries are also posted to the ledger just like any other journal entries to update and correct the
ledger account balances. Here is how the adjusting journal entries affect our cash in the general
ledger:

After all the ledger balances are corrected, our trial balance should be adjusted to reflect the
adjustments we have made. Our next discussion will be on how to prepare an adjusting trial
balance. See you in our next post. Thank you.