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Adjusting Entries

Adjusting Entries

Ok, ang gagawin ko, ipapakita ko muna sa inyo yung logic tapos ituturo ko sa inyo ung strategies kung papano makakasagot sa quiz:

Una sa lahat, ano ba ang adjusting entries?
Ang adjusting entries ay ang mga entrada sa libro na ginagawa para i-update ang Balance ng Accounts.

Bakit ba tayo nag-aadjusting entries?
Kasi ganito. Tatandaan nyo palagi, tao lang ang accountant. Hindi nya kayang entradahan lahat ng transaksyon araw araw. Kung ultimo bolpen na kinuha sa kabinet eentryhan nya, imaginine nyo kung ang kumpanya nyo ay San Miguel Corp. Gaano kalaki yun? Ang laki! Kung araw araw ka mag-eentrada sa nagagamit na bolpen, kumusta naman! Tandaan natin na sa accounting may principle ng Cost Benefit Consideration.

So, sa loob ng isang taon, kadalasan, nag-eentry lang ang kumpanya pag naka-acquire ng asset or nakaincur ng liability. Ina-update nalang nila yung balanse nung asset or liability at the end of the period para mareflect sa balance sheet at income statement ang tamang balanse nya. Mas maiintindihan nyo to pagka nagbigay ako ng examples.

Ok, bago ang lahat, anu-ano ba ang adjusting entries?
1. Prepaid Expense (asset method & expense method)
2. Unearned Income (liability method &income method)
3. Accrued Expense
4. Accrued Income
5. Bad debts
6. Depreciation

PART I

1. Prepaid Expense

Prepaid expenses are expenses incurred which were paid in advance.

Lorenzo Ruiz Co. bought supplies from St. Therese of Avila bookstore for P1,000 cash on Jan. 1 2009. He used P600 throughout the year.

Asset method
Sa asset method, ang INITIAL entry ay Prepaid Expense(pede ring Supplies Inventory) . Asset ito at dito pinasok yung supplies na binili

Jan 1. 2009
(dr) Supplies Inventory (or Prepaid Expense) P1,000
(cr) Cash P1,000

So, sa end of the year, kelangan i-ADJUST nyo yung account nyo ng Supplies Inventory. Kasi, kada gamit nila ng supply, hindi naman ineentryhan kasi sobrang matrabaho yun kapag kada bolpen ng kumpanya na gagamitin ay eentryhan ng accountant. So hindi practical yun. Kaya sa kumpanya, ang ginagawa nila, nag-aadjusting entry sila sa end of the year. Kaya kailangan ng adjusting entry at the end of the year para tumama yung balanse ng Supplies Inventory mo. Dapat ang balanse nalang ng Supplies Inventory nyo (or prepaid expense) Dec 31, 2009 ay P400.
So, kung debit ang normal balance ng SUPPLIES INVENTORY papano mo papababain yung balanse nya to 400? E di I-credit mo sya. Diba?

Eh since double entry method tayo, kung may credit, dapat may debit. Anong Idedebit mo? Diba gumamit ka ng supplies, edi expense mo na yung nagamit mo. So ang debit mo ay Supplies Expense

Adjusting Entry Dec. 31, 2009
(dr) Supplies Expense 600
(cr) Prepaid Expense 600

Expense Method
Sabi ko, malalaman ang method na ginamit ng kumpanya depende sa INITIAL ENTRY. Whether sa Asset ba sya pinasok o sa Expense. So, sa Expense method, sa expense sya unang ipinasok.

So, using the same problem, ang entry on January 1, 2009:
(dr) Supplies Expense P1,000
(cr) Cash P1,000

So, bakit ganon ang initial entry? Siguro, excited yung accountant kaya kinonsider nya na as expense lahat lahat ng supplies an binili kahit na hindi pa gamit. Tama ba yun? Kaya may adjusting entries para itama yung balanse nya at the end of the year.

So, dapat ang expense mo lang talaga ay P600 diba, kasi yun lang talaga yung nagamit mo. Eh nirecord nya nung una P1,000 so, bababaan mo yung expense mo ng P400 para tama yung balanse mo ng Expense. Eh normal balance ng Expense ay Debit, anong gagawin mo? E di Credit Expense ng 400. Eh anong debit mo? Yung hindi nagamit na P400, ilalagay mo sya sa imbentaryo. So ang debit ay supplies Expense.

So ang entry:
(dr) Supplies Inventory P 400
(cr) Supplies Expense P400

Ngayong alam nyo na ang logic ng Prepaid/Acrrued expense, tuturuan ko kayo ng strategies.

UNA: papano ba malalaman ang tinatanong ng teacher? Pano mo malalaman kung asset or expense method. Alam nyo sa totoo lang, iyan din ang problema ko noon. Kaya nagkakandabagsak bagsak ako sa adjusting entries until nalaman ko to: depende sa wording ng problem, yun ang method na gagamitin.

Ano ba ang wordings na ginagamit sa problem pag:

Asset Method (prepaid expense)
“…the company recorded an asset worth…”
“…an asset was recognized…”
“…and was recorded as an asset…”
“… a prepaid expense was recorded at…”
“…the company prepaid an expense worth…”
“…the Prepaid Asset account was recorded at…”
“…a supplies inventory worth…”
“Prepaid Assset…”

Expense Method
“…the whole acquisition was recorded as an expense…”
“… was expensed…”
“…an expense worth Pxx was recorded…”
“…Supplies/Prepaid expense of Pxx was recorded…”
And so on and so forth. Basta malalaman nyo naman sa wording ng problem kung saang account ipinasok yung acquisition eh.
Kaya be cautious of the wordings.

At ito ang ultimate, the best technique when attacking adjusting entries problems is to use T-account.

Ganito yan, pag nalaman nyo na ang account na papasukan ng initial entry, gumawa ka na ng t-account nun. Tapos, alamin mo ang ending balance nya. Tapos, yung adjusting entry mo yung nasa Debit/Credit depende kung papano inadjust. Ganito:

https://i1.wp.com/i438.photobucket.com/albums/qq107/joseph0487/adjustingentries013.jpg

So, kung papansinin nyo, pareho lang ng balanse ang accounts regardless kung anong method ang gagamitin.

2. UNEARNED INCOME
Ganoon din ang pinakalogic nya pero ngayon, ikaw naman ang kumita.

St. Martin de Porres Co. was paid by Inggo for P6,000 on August 1, 2009 for services to be rendered monthly throughout the year for 12 months. On December 31, 2009:

Hindi pwedeng kada punta mo kay inggo para magrender ng service, magrerecord ka ng income. Gud lak, nakakapagod yun kung araw araw mag-eentry ka diba? Pwede naman talaga sya pero, hindi practical at magastos para sa kumpanya. Always remember the Cost-Benefit Principle.

Liability method.

In both cases, nauna nangyari ang bayaran. Nagkaiba lang ng pinasukan na account ng initial entry. Dito, ang initial entry nya ay sa Unearned Income Account, which is a liability account.

Initial entry on aug 1, 2009
(dr) Cash 6,000
(cr) Unearned Income 6,000

So, lumipas ang panahon at 5 months of service na ang nairender as of dec. 31, 2009. Bale, part ng Unearned income ay “earned” na. So, iaadjust mo ngayon yung Unearned Income account mo. Dapat ang ending balance nya ay P3,500 kasi hindi pa narerender yung P3,500 worth ng services. Babawasan mo ngayon yung balance ng Unearned Income by debiting it. at ano ang iccredit mo? E di “income” kasi kelangan mo magrecognize ng income.

So, ang adjusting entries mo ay:
(dr) Unearned Income 2,500
(cr) Service Income 2,500

Oki?

Income Method
Ang nangyari, sa initial entry, since excited na nman ung accountant, nirecognize nya lahat ng binayad as income agad. Tama ba yun? Kaya may adjusting entries para itama at the end of the period.

Initial entry on aug. 1, 2009:
(dr) Cash 6,000
(cr) Service Income 6,000

So, para itama, dapat bawasan mo yung income mo kasi sobra sobra yun. Hindi pa naman lahat kasi yun nairender mo na, worth P2,500 palang narerender mo as of Dec. 31. So, papano mo babawasan yung service income, edi idebit mo sya by 3,500 para maging P2,500 lang yung lalabas sa income statement. Eh anong Credit? E di yung hindi pa narerender na service which is Unearned income.

Adjusting entry on dec. 31, 2009:
(dr) Service Income 3,500
(cr) Unearned income 3,500

Gets po?

Eto yung T-Account Technique:

https://i2.wp.com/i438.photobucket.com/albums/qq107/joseph0487/adjustingentries014.jpg

Ulit, ang Balances na mag-aappear sa Financial Statement nyo ay pareho lang regardless kung anong method ang gagamitin ng kumpanya.

Basta be aware of the wordings talaga kung saan account pinasok yung entry kasi dun mo malalaman kung anong method ang ginamit ng problem.

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