MODULE CONTENT

Program/Course : BOOKKEEPING NC III

Unit of Competency : Post Transactions
Module : Posting Transactions

INTRODUCTION:

This module contains information and suggested learning activities on

POSTING TRANSACTIONS. It includes activities and materials on
BOOKKEEPING NC III.

Completion of this module will help you better understand the

succeeding module on PREPARING TRIAL BALANCE.

This module consists of 1 learning outcome. The learning outcome

contains learning activities supported by each instruction sheets. Before you
perform the instructions, read the information sheets and answer the self-
check and activities provided to ascertain to yourself and your trainer that
you have acquired the knowledge necessary to perform the skill portion of
the particular learning outcome.

Upon completion of this module, report to your trainer for assessment

to check your achievement of knowledge and skills requirement of this
module. If you pass the assessment, you will be given a certificate of
completion.

SUMMARY OF LEARNING OUTCOMES:

Upon completion of the module you should be able to:

LO1 Post accounts in the General ledger

Learning Outcome No. 1
The General Ledger

Assessment Criteria:

1.1 Distinguish permanent and temporary accounts.

1.2 Arrange each account according to the Chart of Accounts
1.3 Identify the normal balances of each account
1.4 Arrangement of each steps in the posting process

Contents:

1.1 Permanent and Temporary accounts.

1.2 The Chart of Accounts.

1.3 Normal balances of each account.

1.4 Steps in the posting process.

Tools, Materials and Equipment and Facilities

Worksheet
Calculator
Pen
Pencil
Eraser
CBLM

References:
CBLM

LEARNING EXPERIENCES/ACTIVITIES
LO #1 The General Ledger

Learning Activities Special Instructions

1. Read Information Sheet 2.1-1 You can ask the assistance

on The General Ledger of your trainer explain
further the topics you
cannot understand

2. Perform Job Sheet 2.1-1 on Try to answer the Self-Check

The General Ledger without looking at the
information sheet

3. Compare answers to Answer

key Sheet 2.1-1 on The General
Ledger

After doing this activity, you are now ready to proceed to the
next
Module on Preparing Trial Balance.

INFORMATION SHEET 2.1.1

 The General Ledger

Learning Objectives:

After reading this information sheet, YOU MUST be able to:

1. Distinguish permanent from temporary accounts

2. Arrange each account according to the Chart of Accounts
3. Identify the normal balances of each account
4. Arrange each step in the posting process.
Introduction:

GENERAL LEDGER. A complete record of the daily business transactions of

a business are kept in a journal or special journals. But these entries in
debits and credits do not show the changes that take place for a specific
account. It is thus necessary to transfer the debits and credits of recorded
transactions to individual accounts so that all changes in any single account
may be summarized in only one place. The balance of any account may then
be determined at any given date. The accounts which show the changes for
every asset, liability, and owner’s equity are called the ledger accounts. The
compilation of all ledger accounts is called the general ledger which is the
book of final entry.
Although some business enterprise use various ledgers to collect certain
detailed data, all firms have a general ledger. It is the “reference book” of
the accounting system and is used to classify and summarize transactions,
and to prepare information for basic financial statements.

The accounts in the general ledger are classified into two general groups:

1. Balance sheet, real or permanent accounts

(assets, liabilities and owner’s equity accounts)

2. Income statement, nominal or temporary accounts

(income and expenses)

Temporary or nominal accounts are used to gather information for a

particular accounting period. At the end of the period, the balances of these
accounts are transferred to a permanent owner’s equity account.
Each account has its own record in the ledger. Every account in the ledger
maintains the basic format of the T-account but offers more information (e.g.
the account number at the upper right corner and the journal reference
column). Compared to a journal, a ledger organizes data by account.

Standard form of a General Ledger.

 Account Name No.____
Dat Particulars J.R. Debit Credit Balance
e

Fig. 1
CHART OF ACCOUNTS. The source document of the accounts
appearing in a ledger as well as the account numbers is a chart of
accounts. The chart is arranged in the financial statement order, that is,
asset first, followed by liabilities, owner’s equity, income and expenses. The
accounts should be numbered in flexible manner to permit indexing and
cross-referencing.
In analyzing transactions, the accountant or bookkeeper refers to the chart
of accounts to identify the relevant accounts to be increased or decreased. If
a suitable account title is not recorded in the chart, new accounts may be
added. Below is the illustration of a chart of accounts.
Salas Landscape Specialist
Chart of Accounts
Balance Sheet Accounts Income Statement
Accounts
Assets Income
11 Cash 410 Landscaping Revenue
0
12 Accounts Receivable 420 Lawn Cutting
0 Revenue
13 Supplies
0
14 Prepaid Rent Expenses
0
15 Prepaid Insurance 510 Salaries Expense
0
16 Vehicles 520 Supplies Expense
0
16 Accumulated Depreciation- 530 Rent Expense
5 Vehicles
17 Equipment 540 Insurance Expense
0
17 Accumulated depreciation- 550 Gas Expense
5 Equipment
560 Advertising Expense
Liabilities 570 Depreciation
Expense-
21 Notes Payable Vehicles
0
22 Accounts Payable 580 Depreciation
0 Expense-
23 Salaries Payable Equipment
0
24 Interest Payable 590 Interest Expense
0
25 Unearned Revenues
0
Owner’s Equity
31 Salas, Capital
0
32 Salas, Withdrawals
0
33 Income Summary
0

NORMAL BALANCE OF AN ACCOUNT

The normal balance of any account refers to the debit or credit side of the
account where increases are recorded. Asset, owner’s withdrawal and
expense accounts normally have debit balances, while liability,
owner’s equity and income accounts normally have credit balances

POSTING. The process of transferring data from the journal to the ledger is
called posting which should be made at frequent intervals. Debits in the
journal are posted as debits in the ledger, and credits in the journal as
credits in the ledger. The steps are as follows:
1. Transfer the date of the transaction from the journal to the ledger.
2. Transfer the page number from the journal to the journal reference
(J.R.) column of the ledger.
3. Post the debit figure from the journal as a debit figure in the ledger
and the credit figure from the journal as a credit figure in the
ledger.
4. Enter the account number in the posting reference column of the
journal once the figure has been posted to the ledger.

JOURNAL
Page 1
Date
2004 Description PR Debit Credit
Oc 1 Cash 11 1000 0
t 0 0 0
Salas, Capital 31 1000 0
0 0 0
To record Joseph initial
 investment

LEDGER

Account: Cash Account No. 110

Date
200 Particulars J.R. Debit Credit Balance
4
Oct 1 Initial J-1 1000 0 1000 0
Investment 0 0 0 0

Account: Salas, Capital Account No. 310

Date Particulars J.R. Debit Credit Balance
200
4
Oct 1 Initial J-1 1000 0 10000 0
Investment 0 0 0
 JOB SHEET 2.1-1

Title: Posting to the General Ledger

Performance Objective:
Given the problems on the next page, Post each
transaction to the General Ledger.

Supplies/Materials:
Columnar pad, pen/pencil, calculator, ruler

Steps/Procedures:
1. Transfer the date of the transaction from the journal to the
ledger.
2. Transfer the page number from the journal to the journal
reference column of the ledger.
3. Post the debit figure from the journal as debit figure in the
ledger.
4. Post the credit figure from the journal as credit figure in the
ledger.
5. Enter the account number in the posting reference column
of the journal once the figure has been posted to the ledger.

Assessment
Method:

Demonstration
Given:

On March 1, 2004, Rambo Tan established a rental property business. He

completed the following transactions during the month:

a. Opened a bank account from his personal funds with a deposit of

P100,000.

b. Purchased supplies on account, P11,500.

c. Cash received on fees earned for the rental property, P45,000.

d. Paid rent on office and equipment for the month, P25,000.

e. Paid accounts of P5,000.

f. Billed property owners for fees earned for managing rental property,
P32,500.

g. Paid telecommunications expenses for the month, P9,800, and

miscellaneous expenses, P7,750.

h. Paid office salaries, P15,000.

i. Determined that the cost of supplies on hand was P2,150.

j. Withdrew cash for personal use, P10,000.

 PERFORMANCE CHECKLIST 2.1-1

Performance Criteria YES NO

Did the trainee…

1. Transfer the date of the transaction from the

journal to the ledger?
2. Transfer the page number from the journal to the
journal reference column of the ledger?
3. Post the debit figure from the journal as debit figure
in the ledger?
4. Post the credit figure from the journal as credit
figure in the ledger?
5. Enter the account number in the posting reference
column of the journal once the figure has been
posted to the ledger?
6. Analyze each transaction carefully?

7. Apply the rules of the accounting equation?

8. Arrived at a debit balance of P145,000 for Cash?

9. Arrived at a credit balance of P72,550 for Cash?

10. Arrived at a final debit balance P72,450 for Cash?

11. Arrived at a final credit balance of P77,500 for

fees earned?
12. Arrived at a final credit balance of P6,500 for
accounts payable?
 MODULE CONTENT

Program/Course : BOOKKEEPING NC III

Unit of Competency : Prepare Trial Balance
Module : Preparing Trial Balance

INTRODUCTION:

This module contains information and suggested learning activities on

PREPARING TRIAL BALANCE. It includes activities and materials on
BOOKKEEPING NC III.

Completion of this module will help you better understand the

succeeding module on PREPARE FINANCIAL REPORTS

This module consists of 2 learning outcomes. The learning outcome

contains learning activities supported by each instruction sheets. Before you
perform the instructions, read the information sheets and answer the self-
check and activities provided to ascertain to yourself and your trainer that
you have acquired the knowledge necessary to perform the skill portion of
the particular learning outcome.

Upon completion of this module, report to your trainer for assessment

to check your achievement of knowledge and skills requirement of this
module. If you pass the assessment, you will be given a certificate of
completion.

SUMMARY OF LEARNING OUTCOMES:

Upon completion of the module you should be able to:

LO1 List accounts in the General ledger and verify the equality of its
debits and credits.
LO2 Prepare adjustments, adjusted trial balance, 10-column
worksheet.
Learning Outcome No. 1
The Trial Balance

Assessment Criteria:

1.1 Verify the accuracy of the application of the rules of debit and
credit in the recording process.
1.2 List each account according to the Chart of Accounts
1.3 Identify the normal balances of each account
1.4 arrangement of each steps in preparing the trial balance.

Contents:

1.1 Application of the rules of debit and credit in the recording

process.
1.2 The Chart of Accounts.

1.3 Normal balances of each account.

1.4 Steps in the preparation of trial balance

Tools, Materials and Equipment and Facilities

Worksheet
Calculator
Pen
Pencil
Eraser
CBLM

References:
CBLM
 LEARNING EXPERIENCES/ACTIVITIES
LO #1 The Trial Balance

Learning Activities Special Instructions

1. Read Information Sheet 3.1-1 You can ask the assistance

on The Trial balance of your trainer explain
further the topics you
cannot understand

2. Perform Job Sheet 3.1-1 on Try to answer the Self-Check

The Trial Balance without looking at the
information sheet

3. Compare answers to Answer

key Sheet 3.1-1 on The Trial
Balance

After doing this activity, you are now ready to proceed to the
next
Module on Preparing Financial Reports.
 INFORMATION SHEET 3.1-1
The Trial Balance

Learning Objectives:

After reading this information sheet, YOU MUST be able to:

1. Verify and prove the accuracy of each account in the trial balance by
applying the rules of debit and credit.
2. List each account in accordance with the chart of accounts.
3. Apply the procedures in preparing trial balance.

Introduction:

After transactions have been posted from the journal to the ledger, the
balances of all accounts are taken for the preparation of financial
statements. However, before the financial statements are prepared from
information summarized in the different ledger accounts, it is necessary to
test the accuracy of the entries and the postings made. The arithmetic
accuracy of the general ledger account balances is checked with the
preparation of a trial balance.

Trial Balance. – is a statement that shows the balances of all general

ledger accounts presented in their debit or credit balances which balances
are then totaled. This is called a trial balance of balances. Another type of
trial balance is the trial balance of totals which shows for every ledger
account both the debit and credit totals and not just the balances. Thus, in a
trial balance of balances only either the debit or credit balances are shown.
Whereas in a trial balance of totals both debit and credit totals are shown
even if the account has a zero balance.

The procedure in preparing a trial balance are the following:

1. Place the heading of the statement at the top center of the report. The
heading includes the name of the company, the name of the
statement, and the date of the statement.

2. Copy the accounts from the general ledger in the order in which they
appear, writing both the account title and the account balance in the
appropriate debit or credit money column.
 3. Rule and total both debit and credit money columns which must be
equal. Double rule across the money columns to indicate that the
statement is now complete.

The following is an illustration of a trial balance:

MARKSMAN TRADING
Trial Balance
September 30, 2008

Cash on Hand P 3,050

Accounts Receivable-Army Store 7,500
Prepaid Rent 500
Store Furniture 3,000
Accounts Payable-Trending Suit P 5,000
Company
Notes Payable 2,400
Unearned Rent 100
P. Santos, Capital 5,000
Sales 7,500
Purchases 5,000
Supplies Expense 250
Utilities Expense 200
Salary Expense 500
P 20,000 P 20,000

It will be noted from the trial balance prepared that the accounts are usually
listed in the same sequence of a chart of accounts. Hence, asset accounts
come first, followed by liability, capital, income, and expense accounts. Thus,
the trial balance accounts can be classified into two groups-the balance
sheet accounts and income statement accounts.

The trial balance therefore has two functions:

1. To verify if the total debits and the total credits of the ledger accounts
are equal.

2. To provide the information required for the preparation of the financial

statements.
 JOB SHEET 3.1-1

Title: Trial Balance

Performance Objective:
Given the problems below, prepare a trial balance as of
January 31 of the current year based on the following accounts on
the ledger of JAG Apparel. List the accounts in proper order and
supply the amount of J.A. Gubat, Capital.

Notes payable P10,80 Unearned rent P24,000

0
Rent income 340,00 Prepaid insurance 12,000
0
Salaries expense Mortgage note 200,000
36,000 payable
Utilities expense Building 850,000
19,000
Miscellaneous Land 120,000
expense 3,800
Cash Equipment 60,000
25,000
Office supplies Interest expense 12,000
4,200
Accounts receivable Furniture & fixtures 40,000
20,000
Accounts payable J.A. Gubat, Capital ?
21,200

Supplies/Materials:
Columnar pad, pen/pencil, calculator, ruler

Steps/Procedures:
1. Place the heading of the statement at the top center of
the report. The heading includes the name of the
company, the name of the statement, and the date of the
statement.
 2. Copy the accounts from the general ledger in the order in
which they appear, writing both the account title and the
account balance in the appropriate debit or credit money
column.
3. Rule and total both debit and credit money columns which
must be equal. Double rule across the money columns to
indicate that the statement is now complete.

Assessment
Method:

Demonstration

PERFORMANCE CHECKLIST 3.1-1

Performance Criteria YES NO

Did the trainee…

1. Place the heading of the statement at the top

center of the report?

2. Copy the accounts from the general ledger in

the order in which they appear, writing both the
account title and the account balance in the
appropriate debit or credit money column?

3. Rule and total both debit and credit money

columns?

4. Arrived at a balance of P606,000 for Capital?

5. Arrived at a debit balance of P1,202,000?

6. Arrived at a credit balance of P1,202,000?

Learning Outcome No. 2

Adjustments, Adjusted Trial Balance, 10-column worksheet.

Assessment Criteria:

1.1 Understand the need for adjusting entries.

1.2 Develop basic skills in preparing adjusting entries.
1.3 Reflect proper amounts of revenues realized and expenses
incurred during a period.
1.4 Show a fair measure of assets, liabilities, and owner’s equity.

Contents:

1.1 Adjusting Entries

1.2 Adjusted Trial Balance.

1.3 Worksheet

Tools, Materials and Equipment and Facilities

Worksheet
Calculator
Pen
Pencil
Eraser
 CBLM

References:
CBLM

LEARNING EXPERIENCES/ACTIVITIES

LO #2 Adjustments, Adjusted Trial Balance, 10-column worksheet.

Learning Activities Special Instructions

1. Read Information Sheet 3.2-1 You can ask the assistance

on Adjustments, Adjusted Trial of your trainer explain
Balance, 10-column worksheet. further the topics you
cannot understand

2. Perform Job Sheet 3.2-1 on Try to answer the Self-Check

Adjustments, Adjusted Trial without looking at the
Balance, 10-column worksheet. information sheet

3. Compare answers to Answer

key Sheet 3.2-1 on Adjustments,
Adjusted Trial Balance, 10-
column worksheet.

After doing this activity, you are now ready to proceed to the
next
Module on Preparing Financial Reports.
 INFORMATION SHEET 3.2-1
Adjustments, Adjusted Trial Balance, 10-column worksheet
Learning Objectives:
After reading this information sheet, YOU MUST be able to:
1. Understand the need for adjusting and closing entries.
2. Develop basic skills in preparing adjusting and closing entries.
3. Reflect proper amounts of revenues realized and expenses incurred
during a period.
4. Show a fair measure of assets, liabilities, and owner’s equity.
Introduction:
The trial balance is a proof of the equality of the debit and credit balances in
the ledger accounts. It is also the source of information that are needed to
prepare the financial statements which are used to evaluate the financial
condition of a business and the results of its operations. Thus, it is very
important that the income statement reports all revenue and expense for a
particular period and that the balance sheet shows as accurately as possible
all assets and liabilities at the end of an accounting period. In order to do
this, some account balances need to be adjusted before the statements are
prepared.
The Accounting Period. The periodicity concept assumes that the life of a
business may be divided into segments of time periods or accounting periods
which are generally a month, a quarter, or a year. The most basic accounting
period is one year. Business organizations may choose their accounting year.
Be it fiscal, calendar or natural. A fiscal year is a period of any twelve
consecutive months. A calendar year is an annual period ending on
December 31. A natural business year is a twelve-month period that ends
when business activities at their lowest level of the annual cycle. A period of
less than a year is an interim period. Some assumes an annual reporting
period of 52 weeks. Since many business transactions begin in one period
and may extend into another period, it is very important to relate the
measurement of income and the recognition of expense to a definite period
of time.
Accrual Basis. The accrual basis of accounting provides certain guidelines
for income measurement.
1. That the income is to be recognized in the period when realized.
2. That expense is to be recognized in the period incurred.
This means that income from the rendering of services or the sale of
merchandise should be reported in the books at the time such services or
sales are made even if cash has not been received. On the other hand,
expenses should be recognized in the period during which benefits have
been received even if cash has not been paid.
Adjusting Entries. An adjusting entry is necessary to adjust the balance of
an account in order to generate correct data at the end of the accounting
period. Adjusting entries are recorded in a general journal and posted to the
ledger accounts so that information in the accounts will then be brought to
correct balances.
Deferrals and Accruals.
There are two general types of adjustments made at the end of the
accounting period – deferrals and accruals.
Each adjusting entry affects a balance sheet account (an asset or a
liability account) and an income statement account (income or
expense account).
Deferral is the postponement of the recognition of “an expense already paid
but not yet incurred,” or of “a revenue already collected but not yet earned”.
This adjustment deals with an amount already recorded in a balance sheet
account; the entry, in effect, decreases the balance sheet account and
increases an income statement account.

Deferrals would be needed in two cases:

1. Allocating assets to expense to reflect expenses incurred during the
accounting period. (e.g. prepaid insurance, supplies and depreciation).
2. Allocating revenues received in advance to revenue to reflect revenues
earned during the accounting period (e.g. subscriptions, membership).

Accrual is the recognition of “an expense already incurred but unpaid”, or

“revenue earned but uncollected”. This adjustment deals with an amount
unrecorded in any account; the entry, in effect, increases both a balance
sheet and an income statement account.

Accruals would be required in two cases:

 1. Accruing expenses to reflect expenses incurred during the accounting
period that are unpaid and unrecorded.
2. Accruing revenues to reflect revenues earned during the accounting
period that are uncollected and unrecorded.

Prepaid Expenses are assets, not expenses. At the end of an accounting

period, a portion or all of these prepayments may have expired. The portion
of an asset that has expired becomes an expense. Prepaid expenses expire
either with the passage of time or through use and consumption.

If adjustments for prepaid expenses are not made at the end of the period,
both the balance sheet and the income statement will be misstated. The
assets will be overstated and the expenses understated. For this reason,
owner’s equity in the balance sheet and profit in the income statement will
both be overstated.

Rent paid in advance

Nov. 1 Rented office space and paid three month’s rent in advance,
P21,000.
Original entry Dr. Cr.
Prepaid Rent 21,000
Cash 21,000

Prepaid Rent (adjustment)

Salas makes an adjusting entry to record the expiration of one month of the
three month’s advance rent paid on Nov.1.
Adjusting Entry
Rent Expense 7,000
Prepaid Rent 7,000

After adjustments, the prepaid rent account has a balance of P14,000

(prepayment of P21,000 less the P7,000 expired portion); the rent expense
account reflects the P7,000 (P21,000/3 months) expense for the month.

Insurance Premium paid

Nov. 5 Salas pays P24,000 for a one year insurance contract that protects
his business from Nov.1 to Oct.31 of the following year.
Original entry Dr. Cr.
Prepaid Insurance 24,000
Cash 24,000
Prepaid Insurance (adjustment)
Salas records the expiration of one-twelfth of his one year insurance policy
taken last Nov. 5.
Adjusting Entry
Insurance Expense 7,000
Prepaid Insurance 7,000
The prepaid insurance account has a balance of P22,000 (P24,000
prepayment less P2,000) and insurance expense reflects the expired amount
of P2,000 (P24,000/12 months) for the month.
Supplies Purchased on Account
Nov. 8 Salas purchases P1,000 worth of office supplies, placing the
purchase on his account with the store rather than paying cash.
Original entry Dr. Cr.
Supplies 1,000
Accounts Payable 1,000

Supplies (adjustment)
Salas discovers that he used P500 worth of supplies during November.
Adjusting Entry
Supplies Expense 500
Supplies 500

The asset account supplies now reflect the adjusted amount of P500 (Nov. 8
supplies purchase of P1,000 less P500). Likewise, the amount of supplies
expensed during the accounting period is P500.

Depreciation of Plant, Property and Equipment

When an organization acquires long-lived assets such as buildings, vehicles,
computers, or office furniture and fixtures, it is essentially buying or
prepaying for the usefulness of that asset. Thus, a portion of the cost of the
assets should be reported as expense in each accounting period. Proper
accounting requires allocation of the cost of the asset over its estimated
useful life which is called depreciation or depreciation expense.
The simplest and most common method of determining depreciation is the
straight-line method with the following formula.

Asset cost xx
Less: estimated salvage value xx
Depreciable cost xx
Divided by: Estimated useful life xx
Depreciation Expense xx
Where:
Cost = the purchase or acquisition cost plus any incidental cost or
expenses
incurred until the asset is ready for use.

Useful life = the period or number of years that the asset will provide
benefits
to the company.

Scrap or salvage value = amount that could be realized upon the sale of
the
asset at the end of its useful life.
The asset account is not directly reduced when recording depreciation
expense. Rather, it is recorded in a contra account called accumulated
depreciation.
Use of the contra account – accumulated depreciation – allows the disclosure
of the original cost of the related asset in the balance sheet. The balance of
the contra account is deducted from the cost to obtain the book value of
the property and equipment.

Acquired vehicle by issuing a note

Nov. 2 Salas purchases a P300,000 used truck by paying P200,000 in cash
and signing a P100,000 note payable which is due in eighteen months.
Original entry Dr. Cr.
Vehicles 300,000
Cash 200,000
Accounts Payable 100,000

Vehicle (adjustment)
Salas bought a truck last Nov.2 and allocates a full month’s depreciation for
property on or before the 15th day of the month. It is estimated that the truck
will have a useful life of five years and a scrap value of P30,000.
Adjusting Entry
Depreciation Expense-Vehicle 4,500
Accumulated Depreciation-Vehicle 4,500
Depreciation Expense for truck computed as follows:
P4,500 a month [(P300,000 – P30,000)/60 months]
Acquired Equipment for Cash
Nov. 3 Salas purchases lawn equipment for P54,000 in cash..
Original entry Dr. Cr.
Equipment 54,000
Cash 54,000

Supplies (adjustment)
Salas bought a lawn equipment on Nov. 3 and allocates a four-and-a-half
year useful life without salvage value.
Adjusting Entry
Depreciation Expense-Equipment 1,000
Accumulated Depreciation-Equipment 1,000
Depreciation Expense for Equipment computed as follows:
P1,000 (P54,000/54 months)

The property and equipment section of the balance sheet of Salas

Landscaping Services after adjustment for would be as follows:

Salas Landscaping Services

Partial Balance Sheet
November 30, 2008

Property and Equipment (Net):

Service Truck P 300,000
Less: Accumulated Depreciation 4,500 P 295,500

Office Equipment P 54,000

Less: Accumulated Depreciation 1,000 53,000
P348,000

Deferred or Unearned (Income) Revenues Collected

Nov. 20 Salas receives P13,500 from a customer for six future service
visits.
Original entry Dr. Cr.
Cash 13,500
Unearned Income 13,500

Adjusting Deferred Income to Service Income (adjustment)

On Nov. 20, Salas received a P13,500 prepayment for six future service
visits. During November, Salas completed one of these visits.
Adjusting Entry
Unearned Income 2,250
Service Income 2,250

The liability account unearned income reflects the service income still to be
earned, P11,250. The revenue or income account reflects the amount of
services already completed and considered as income or revenue during the
month.
P2,250 (P13,500/6 visits)

Accrued Expenses are expenses that has already been incurred but not yet
paid. It is the opposite of prepaid expenses. An establishment usually incurs
expenses before paying for them. Payments in cash are often made at
regular intervals of time such as weekly, monthly, quarterly or annually. If
the accounting period ends on a date that does not conform with the date of
the scheduled cash payment, an adjusting is necessary to show the expense
incurred since the last payment. This adjustment helps the establishment
avoid inappropriate preparation of hourly or daily journal entries just to
accrue expenses. Salaries, interest, utilities (e.g., electricity,
telecommunications and water) and taxes are examples of expenses that are
incurred before payment is made.

Accrued Salaries (adjustment)

Salas records an expense for the salaries of his part-time worker who earned
P1,600 during the last four days of November but will not be paid until Dec.
10.
Adjusting Entry
Salaries Expense 1,600
Salaries Payable 1,600

The liability of P1,600 (P400 daily rate x 4 days) is now correctly reflected in
the salaries payable account. The actual expense incurred for salaries during
the month is P5,600 (Nov. 26 salaries payment of P4,000 + P1,600)

Accrued Interest (adjustment)

Salas’ P100,000 note payable , which he signed on Nov. 2 has an interest
rate of 18%. Salas uses the simple interest formula to calculate how much
interest expense accrued during the final twenty-eight days of November.

Interest = Principal x Interest Rate x Time

= P100,000 x 18% per year x 23/360 of a year
 = P1,400
Adjusting Entry
Interest Expense 1,400
Interest Payable 1,400

At the end of November, Salas owed the bank P1,400 for interest in addition
to the P100,000 loan.

Accrued Revenue or Income. An establishment may provide services

during the period that are neither paid for by clients nor billed at the end of
the period. The value of these services represents revenue or income earned
by the entity. Any revenue or income that has been earned but not recorded
during the accounting period requires an adjusting entry that debits an asset
account and credits an income account.

Accrued Service Income (adjustment)

In the morning of Nov. 30, Salas rendered services to one customer and
agrees to mail the same for P2,500 which he does on Dec. 2.
Adjusting Entry
Accounts Receivable 2,500
Service Income 2,500
A total of P42,250 (P37,500 + P2,250 + P2,500) in service revenues was
earned by the establishment during the month.
Doubtful or Uncollectible Accounts. It is inevitable that some accounts
receivable from customers arising from credit sales will prove to be
uncollectible. This loss which is a result of worthless or bad accounts is
referred to as doubtful accounts expense. For proper income measurement,
it is important that a provision for the uncollectible accounts be recorded
during the same period that income from sales is recognized.

An estimate of doubtful accounts is computed usually as a percentage of

credit sales or as a percentage of outstanding accounts receivable. The
adjusting entry for doubtful accounts is made for the following purposes:
1. To record a doubtful accounts expense during the same period that the
related income from sales is recognized.
2. To report the accounts receivable at the approximate amount actually
collectible.

Assume that an establishment made a credit sales of P1,100,000 in 2006

and prior experience indicates an expected 1% average uncollectible
accounts rate based on credit sales. The contra account – Allowance for
Uncollectible accounts has a normal credit balance and is shown in the
balance sheet as a deduction from Accounts Receivable. The allowance
account need to be increased by P11,000 (P1,100,000 x 1%) because
accounts receivable in that amount is doubtful of collection.
 Dr. Cr.
Uncollectible Accounts Expense 11,000
Allowance for Uncollectible Accounts 11,000

During the accounting period, when there is positive evidence that a specific
account is definitely uncollectible, the appropriate amount is written off
against the contra account. For example, if a P1,500 receivable were
considered uncollectible, that amount would be written off as follows:

Allowance for Uncollectible Accounts 1,500

Accounts Receivable 1,500

Worksheet. The financial statements may be prepared directly from a trial

balance which shows the correct balances of the accounts. Adjustments
must therefore be posted to the general ledger to bring balances to correct
amounts. To facilitate the preparation of financial statements, the trial
balance may be prepared on a worksheet.

A worksheet is a columnar paper which can be used for the following

purposes:
1. To compute the adjustments and the adjusted balances of accounts.
2. To classify the accounts into the income statement accounts and the
balance sheet accounts.
3. To determine the net income or the net loss.

The following are the procedures to complete the worksheet.

1. Place the worksheet heading at the center of the columnar form with
the following information: name of the company, worksheet, and
the period covered. Complete all column headings.
2. Place the trial balance in the first section with the accounts listed in the
same order as they appear in the general ledger. Total the debit and
credit columns. If the trial balance is in balance, double-rule across
both columns.
3. Enter all the adjustments in the second section. After proving the
equality of debit and credit amounts, double-rule across both columns.
Use letters or numbers to identify each entry of debit and credit. New
account titles are placed in the appropriate account title column in the
worksheet.
4. Complete the third section by extending the adjusted balances of all
accounts to the adjusted trial balance columns. The new balance of an
account that has been adjusted is computed by combining the account
balance in the trial balance section with the adjustments, if any. This
 procedure which is called cross-footing will require either an addition
or subtraction. Prove if the adjusted debits and credits are equal.
Double-rule across both columns.
5. Complete the statement sections by extending all income, cost and
expense accounts to the fourth section and all assets, liabilities and
owner’s equity account to the fifth section. The income and expense
summary account is extended to the fourth section. Total all debit and
credit columns of these sections and determine the amount by which
the columns do not agree. The difference between the debit and credit
columns of the income statement should be equal to the difference
between those of the balance sheet.
6. Compute the net income or the net loss by analyzing the column totals
of the income statement section. If the credit total (which shows the
income accounts) exceed the debit total (which shows the costs and
expenses), then the result of operations is a net income. If the debit
total exceeds the credit total, then the result of operations is a net
loss.
7. Verify the net income or the net loss determined in step no. 6 above by
analyzing the column totals of the balance sheet section. If the debit
(which shows the assets) exceed the total credit total (which shows
liabilities and owner’s equity) then the owner’s equity is to be
increased by the net income. If the credit total exceeds the debit total,
then owner’s equity is to be decreased by the net loss.
8. Balance the debit and credit totals of both the income statement and
the balance sheet sections by placing the amount of the difference in
the columns with the smaller totals. Bring down new totals of debits
and credits which are equal and double-rule across the columns.

The following worksheet on the next page is prepared for Salas Landscaping
Services to illustrate worksheet preparation.

Salas Landscaping Services

Worksheet
For the month ended Nov. 30, 2008
Trial Balance Adjustments Adjusted Trial Income Statement Balance Sheet
Balance
o. Account title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
0 Cash 182,250 182,250 182,250
0 Accounts Receivable 7,500 i. 2,500 10,000 10,000
0 Supplies 1,000 c. 500 500 500
0 Prepaid Rent 21,000 a 7,000 14,000 14,000
.
0 Prepaid Insurance 24,000 b 2,000 22,000 22,000
.
0 Truck 300,000 300,000 300,000
5 Accum. Depreciation-Truck d 4,500 4,500 4,500
.
0 Equipment 54,000 54,000 54,000
5 Accum. Depreciation-Equipment e. 1,000 1,000 1,000
0 Notes Payable 100,000 100,000 100,000
0 Accounts Payable 1,000 1,000 1,000
0 Salaries Payable g 1,600 1,600 1,600
.
0 Interest Payable h 1,400 1,400 1,400
.
0 Unearned Revenues 13,500 f. 2,250 11,250 11,250
0 Salas, Capital 450,000 450,000 450,000
 JOB SHEET 3.2-1

Title: Adjustments, Adjusted Trial Balance,

10-column worksheet – Service Concern

Performance Objective:
Given the Trial Balance, journalize the adjusting entries
and prepare the Adjusted Trial Balance using a 10-column
worksheet.

Supplies/Materials:
Columnar pad, pen/pencil, calculator, ruler
Steps/Procedures:
1. Place the heading of the statement at the top center of
the report. The heading includes the name of the
company, the name of the statement, and the date of
the statement.
2. Copy the accounts from the unadjusted trial balance in
the order in which they appear, writing both the
account title and the account balance in the
appropriate debit or credit money column.
3. Rule and total both debit and credit money columns
which must be equal. Double rule across the money
columns to indicate that the statement is now
complete.
4. Enter all adjustments in the column provided for
adjustments. Use letters or numbers to identify each
entry of debit and credit. Journalize each of the
adjustment.
5. Complete the next section by extending the adjusted
balances of all the accounts to the adjusted trial
balance columns.
6. Complete the next sections by extending all income,
costs and expenses in the income statement column,
all assets, liabilities and owner’s equity accounts in the
balance sheet column.
7. Compute the net income or the net loss by analyzing
the column totals of the income statement and the
balance sheet. The difference between the debit and
credit columns of the income statement should be
equal to the difference between those of the balance
sheet.

Assessment
Method:
Demonstration

CROWN SERVICES
Trial Balance
December 31, 2001

Cash P 12,000
Notes Receivable 15,000
Accounts Receivable 30,000
Supplies 2,300
Prepaid Insurance 1,700
Furniture & Equipment 25,000
Accumulated Depreciation – Furn. & Equip. P
5,000
Building 150,000
Accumulated Depreciation- Building 15,000
Land 55,000
Accounts Payable 28,000
Unearned Rent 3,600
Mortgage Payable 60,000
T. Crown, Capital 105,600
T. Crown, Drawing 6,500
Service Income 125,000
Salaries Expense 35,000
Utilities Expense 5,500
Taxes & Licenses 1,700
Miscellaneous Expense 2,200
Interest Income 500
Interest Expense 800
P 342,700 P 342,700

Adjustment Data:
a. Inventory of unused supplies P 800
b. Insurance Expired 900
c. Depreciation of Furniture & Equipment 10% / year
d. Depreciation of Building 5% / year
e. Unearned Rent 1,200
f. Accrued (unpaid) Salaries 700
g. Accrued (uncollected) interest on Notes Receivable 400

PERFORMANCE CHECKLIST 3.2-1

Performance Criteria YES NO

Did the trainee…

1. Place the heading of the statement at the top center of

 the report?

2. Copy the accounts from the general ledger in the order

in which they appear, writing both the account title and
the account balance in the appropriate debit or credit
money column?

3. Enter all adjustments in the column provided for

adjustments?
4. Use letters or numbers to identify each entry of debit
and credit?

5. Journalize each of the adjustment?

6. Complete the next section by extending the adjusted
balances of all the accounts to the adjusted trial
balance columns?
7. Complete the next sections by extending all income,
costs and expenses in the income statement column,
all assets, liabilities and owner’s equity accounts in the
balance sheet column
8. Compute the net income or the net loss by analyzing
the column totals of the income statement and the
balance sheet
9. Arrived at a total of P 15,900 for adjustments?

10. Arrived at P 353,800 total for Adjusted Trial Balance?

11. Arrived at a credit total of P 128,300 for Income

Statement?
12. Arrived at a debit total of P 295,500 for Balance
Sheet?

13. Arrived at a Net Income of P 70,000 ?