FUNDAMENTALS OF

ACCOUNTANCY, BUSINESS, and

MANAGEMENT 1
Quarter 4 Module 1
 Fundamentals of
Accountancy, Business
and Management 1
Grade 11
Quarter 4 Module 1
Week 1 & Week 2

Schools Division Office Management Team: Rosemarie C. Blando, August Jamora,

Merle D. Lopez

Writer: Marissa C. Valle

Illustrator: Julius Burdeos

Fundamentals of Accountancy, Business, and Management 1

Quarter 4
First Edition, 2020

Published by: Department of Education SDO Rizal

Schools Division Superintendent: Cherrylou D. Repia
Assistant Schools Division Superintendents:
Gloria C. Roque and Babylyn M. Pambid
 ADJUSTING ENTRIES WEEK
Lesson
1
I
Under the accounting period (periodicity, reporting period, or time period con-
cept) is any length of time in which the life of the business is divided. Into series of
reporting period. It can either be a monthly period, quarterly period, or a year.

At the end of each accounting period, financial reports are prepared in order
to show the results of the business operations which includes the preparation of the
statement of financial performance (Income Statement), and statement of financial
position (Balance sheets). Several accounts need to be adjusted at the end of each
accounting period.

In this learners packet, you will learn the purpose and the different accounts
needed to be adjusted.

At the end of this topic, Learners are expected to prepares adjusting entries.

D
Adjusting entries are journal entries made at the end of an accounting cycle to
update certain revenue and expense accounts and to make sure you comply with the
matching principle. The matching principle states that expenses have to be matched
to the accounting period in which the revenue paying for them is earned.

Adjusting entries are necessary because a single transaction may affect reve-
nues or expenses in more than one accounting period and also because all transac-
tions have not necessarily been documented during the period.

The main purpose of adjusting entries is to update the accounts to conform

with the accrual concept. At the end of the accounting period, some income and ex-
penses may have not been recorded, taken up or updated; hence, there is a need to
update the accounts.

Adjusting entries will always have the following characteristics: Adjusting en-
tries are internal transactions no new source document exists for the adjustment.
Adjusting entries are non-cash transactions the Cash account will never be used in
an adjusting entry.

IMPORTANT RULES FOR ADJUSTING ENTRIES

When recording adjusting entries, remember two very important rules: First,
cash is never involved in adjusting entries. Cash is always recorded when it is actu-
ally received or paid. Second, adjusting entries always involve either a revenue ac-
count or an expense account.
There are five basic sources of adjusting entries:
1. Depreciation expense
2. Deferred expenses or prepaid expenses
3. Deferred income or Unearned income
4. Accrued expenses or accrued liabilities
5. Accrued income or accrued assets

Depreciation is a method of allocating the cost of an asset to an expense over the

accounting period. Asset which are relatively permanent in nature are fixed assets.
They are used by the business in its operation and are not intended for sale. The
value of this asset, except land decreases as time passes by due to the following rea-
sons:
1. normal wear and tear from operations;
2. inadequacy and obsolescence
Example: A delivery truck was purchased for P350,000 Antipolo, Rizal. It is esti-
mated to last 10 years after which it shall have a value of P10,000. Compute for the
depreciation.
D (Depreciation) = C (cost of the fixed asset) - S (Salvage or Scrap value)/ n (number
of estimated useful life of the fixed asset).
D = 350,000-10,000/10 years = 34,000 per year or 2,833.33 per month
Adjusting Entry:
Depreciation, delivery truck P34,000
Accumulated depreciation, delivery truck P34,000

Deferred Expenses or Prepaid Expenses These are expenses paid in advance.

At the time of payment, the account is an asset and as it is used it becomes an ex-
pense. The adjusting entry on account depends on the original entries made when
it was paid.
There are two methods to be used:
1. Asset Method Under this method, the original entry made is charged to an
asset account.
Example: On November 1, of the current year, Anne Prospere paid P30,000 for a
three-month rental of the office space located at Angono, Rizal..
Original Entry:
Nov 1 Prepaid rent P30,000
Cash P30,000
Adjusting Entry:
Dec 31 Rent Expense P20,000
Prepaid rent P20,000

2. Expense Method. Under this method, expense account is charged when pay-
ment is made. Using the same example, the following are the entries made:
Original Entry:
2. Expense Method. Under this method, expense account is charged when pay-
Nov 1 Rent Expense P30,000
Cash P30,000
To record payment of expense
Adjusting Entry:
Dec 31 Prepaid rent P10,000
Rent Expense P10,000
To adjust payment of rent expense

Adjustment for the realization of income collected in advance or unearned

income
Unearned income are income that arises when payment is received before goods
are delivered before services are rendered.
There are two methods to be used: the income method and the liability method.
1. Income Method Under this method, income account is credited when cash is
received.
Example: On November 1 of the current year, the business received P30,000 cash
from the tenant of the vacant space of the store located at Binangonan, Rizal.
Original Entry:
Nov 1 Cash P30,000
Rent Income P30,000
To record receipt of income
Adjusting Entry:
Dec 31 Rent Income P10,000
Unearned Rent P10,000
To adjust receipt of income
Analysis: The business received from a tenant a P30,000 cash advance rentals for
the months of November, December, and January. As of December 31, only two
months rental or P20,000 are already earned. The remaining P10,000 is still un-
earned until January 31 of the following accounting period.

2. Liability Method under this method, a liability account is credited upon re-
ceipt of cash.
Example: On November 1 of the current year, the business received P30,000 cash
from the tenant of the vacant space of the store.
Original Entry:
Nov 1 Cash P30,000
Unearned Rent P30,000
Adjusting Entry:
Dec 31 Unearned Rent P20,000
Rent Income P20,000
Analysis:
As of December 31, the two-month rentals or P20,000 are already earned.
Only P10,000 or the rental for the month of January is still unearned.

What is accrued expenses or accrued liabilities? These are items of expenses

that have been incurred but have not been recorded and paid.
Example:
On February 29 of the current year, MCValle Company received the electric bill for
the month of February amounting to P5,000. MCValle Company will pay the bill
on March 15 of the current year.
Adjusting Entry:
Feb 29 Utilities Expense P5,000
Utilities Payable P5,000
To accrue the cost of electricity incurred for the month of February.
Analysis: The electric bill represents the cost of electricity used (or incurred) for
February. Although the said bill is still unpaid and thus was not recorded, the
matching principle and accrual basis of accounting dictates that the same should
be recorded in February. Otherwise, your expense will be understated and thus
the company will be reporting an overstated income (or an erroneous income).
Needless to say, erroneous information may lead to a wrong decision.
Accrued Income or Accrued Assets These are income items that have been
earned but have not been recorded and paid by the customer. In short, these are
receivables of the business.
Example: On February 28 of the current year, Alain Pierre repaired the computer
of Freya Alaisa for P15,000. Freya Alaisa was on an out-of-town trip so he could not
pay Alain Pierre. She told Alain Pierre that she will pay for their services on March
1 of the current year.
Adjusting Entry:
Feb 28 Accounts Receivable P15,000
Service Income P15,000
To record accrual of income earned for the month of February
Analysis:
Alain Pierre has already earned the P15,000 but was not paid as of the end of Feb-
ruary of the current year. Therefore, an income should be properly recognized in
February of the current year for this transaction.

E
Learning Task 1:
Use the following information to answer questions 1-6:
On December 1, 2019, your company paid its insurance agent P2,400 for the
annual insurance premium covering the twelve-month period beginning on Decem-
ber 1. The P2,400 payment was recorded on December 1 with a debit to the cur-
rent asset Prepaid Insurance and a credit to the current asset Cash. Your company
prepares monthly financial statements at the end of each calendar month. The fol-
lowing questions pertain to the adjusting entry that should be written by the com-
pany.
Questions:
1.What date should be used to record the December adjusting entry?
2. How many accounts are involved in the adjusting entry?
3. What is the name of the account that will be debited?
4. What is the name of the account that will be credited?
5. What is the amount of the debit and the credit?
6. What would be the effect on the financial statements if the company fails to
Learning Task 2:
Directions: Prepare adjusting entries of each of the following..
1. A tenant occupying a space of the building located at San Isidro, Angono, Rizal,
agreed beginning on November 1 to pay P5,500 per month, and on that he paid
six-months rent in advance. The amount paid was credited to the a) Unearned
Rent Account; and b) another entry was made crediting Rent Income
2. Office employees of MCValle Company are paid every 15th of the month. On

accrued.
3. A tenant who occupies the right side of the shop space, is two months in ar-
rears as of the balance sheet date. His monthly rental is P5,000 per month.

A
Learning Task 3:
Directions: Prepare adjusting entries of the following transactions.
1. A tenant occupying a space of the building, agreed beginning on November 1 to
pay P15,000 per month, and on that he paid six-months rent in advance. The
amount paid was credited to the a) Unearned Rent Account; and b) another en-
try was made crediting Rent Income
2. Four employees earn a total of P1,000 per day for 5 day week that begins on
Monday and ends on Friday. They are paid for the week ended Friday, Decem-
ber 28.
3.
4. One month interest on a P10,000 10% 60 day note was not yet collected.
5. The business has received electric bill for P25,000 for the month but not yet
paid till the end of the month.
Learning Task 4:
Directions: Give the account to be credited to complete the uncompleted adjusting
entries:
Accounts Debited Accounts Credited
a. Accrued Interest Income ____________________
b. Rent Income ____________________
c. Interest Income ____________________
d. Unearned Revenue ____________________
e. Service Income ____________________
WEEK
2 Completing the Accounting Cycle
Lesson
I
After the preparation of Adjusting Journal entries, you will now be able to
present you Adjusted Trial Balance and complete your Worksheet then eventually
extract from the worksheets the different financial statements for business used.
Starting from analyzing business to adjusting journal entries, you are now
about to complete the accounting cycle.
In this learners packet, you will learn what are the different stages in ac-
counting cycle or accounting process.
At the end of this topic, Learners are to demonstrate, understand and com-
plete the accounting cycle of a service business.

D
In previous topics learned, you were able to illustrate how data were docu-
mented and recorded in the journal as well as in the special journals and posting
those data in the general ledger. These data were then processed through the
preparation of worksheet where you can extract the financial statements. This ac-
counting practices involved in these activities are known as the accounting cycle
since they are repeated on a daily or monthly basis.
The Accounting Cycle
1. Transactions
2. Journal Entries
3. Posting
4. Unadjusted Trial Balance
5. Adjusting Journal Entries
6. Worksheet
7. Financial Statements
8. Closing the books
Numbers 1-5 have been discussed from the previous topics.
Worksheet
This step is simply plotting the items in the unadjusted trial balance on the
columnar sheet.
 A worksheet is a large columnar sheet of paper specifically designed to con-
veniently arranged all the accounting information required at the end of the of an
accounting period used by different companies with no accounting software. In
short, this is being used in manual accounting. The worksheet is used to check
whether the balance in the general ledger are summarized and adjusted. The com-
pletion of worksheet provide satisfactory result and assurance that all the details at
the end of the accounting period were properly brought together. It serves as the
source in the preparation of financial statements and other closing and adjusting
entries.
The body of the worksheet contains ten money columns. Below is an exam-
ple of a Worksheet:
MCVALLE COMPANY
Worksheet
For the month ending June 30, 2020
Preparation of Financial Statements
Using the information from the worksheet, the financial statements are pre-
pared

The following are the financial statements to be prepared:

1. Statement of Financial Position (SFP) - formerly known as Balance Sheet.

cific period of time. It can be prepared on a monthly basis, quarterly, semi-

annually or annually.
2. Statement of Comprehensive Income (SCI) - formerly known a Income State-

profit or net loss. It can be prepared on a monthly basis, quarterly, semi-

annually or annually.
3. Statement of Changes in Equity (SCE) - This statement is prepared before the
preparation of Statement of Financial Position in order to obtain the ending bal-
ance of the equity to be used in the SFP. Changes whether an increase or a de-

4. Cash Flow Statement (CFS) - provides an analysis of inflows and/or outflows

of cash from operating, investing, and financing activities.

The statement of comprehensive income of the income statement is prepared

first so that the net income can be recorded in the statement of changes in equity to
determine the ending balance of capital or equity account. Once the ending bal-
ance is determined, the statement of financial position is prepared followed by the
preparation of cash flow statement. See example on the next page (page 13).

Journalizing the Closing Journal Entries

Account titles such as income, expenses, and drawing (from SCE) are called
temporary accounts or nominal accounts. Temporary or nominal accounts are ac-
counts that accumulate the transactions of only one accounting period. At the end

the statement of financial position are referred to as permanent or real accounts

because their balances continue to exist beyond the accounting period. Closing the
 MCVALLE COMPANY
Worksheet
For the month ending June 30, 2020

- -
Books is the process of transferring the balances of the temporary accounts to the

The closing journal entries should consist of the following:

1. Debit the income account and credit the revenue to income summary account.
2. Credit the expense account and debit the income summary account
3. The balance in the income summary account reflect the net income for the ac-
counting period. The next step is close the income summary account to the eq-
uity or capital account. If there is net profit, the entry will a debit to income

4. After recording the closing entries to the general journal, it must be posted to
the general ledger. If posting is done, all the nominal accounts should have ze-
ro balances. To check on this, then you may prepare another trial balance. If
you encounter any balances of the nominal accounts, then a mistake was made
along and you need to go back to your closing entries to check before starting
another accounting period.
Example:
General Journal
Date Account Title and Explanation Ref Debit Credit
2020
June 30 Service Income 172,000
Income Summary 172,000
To close revenue account

Income Summary 51,000

Salaries and Wages 30,000
Light and Power 3,000
Supplies Expense 8,000
Rent Expense 5,000
Depreciation 5,000
To close expense account

Income Summary 121,000

MCValle, Capital 121,000
To close the Income Summary account

MCValle, Capital 5,000

MCValle, Personal 5,000

To close personal account

 Salaries and Wages Light and Supplies Rent Expense Depreciation

Power Expense
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

30,000 3,000 8,000 5,000

30,000 3,000 8,000 5,000 5,000 5,000

0 0 0 0 0

Service Revenue Income Summary

Debit Credit Debit Credit

172,000 172,000 172,000 51,000

0 121,000

Preparing Post Closing Trial Balance where you check the accuracy of the
adjusting and closing entries made.
MCVALLE COMPANY
Post Closing Trial Balance
June 30, 2020

Account Titles Debit Credit

Cash

E
Learning Task 1:
Answer the following questions using your own words.
1. What are nominal accounts, real accounts?
2. Differentiate nominal accounts from real accounts.
3. What is the purpose of the closing entry?
4. What is a post closing trial balance?
5. Why is there a need to prepare a post closing trial balance?
6. Enumerate and describe/illustrate the complete cycle of accounting.
7. Which part did you find it hard to prepare? Why?

A
Learning Task 2:
Tours and Travel was organized by the former student of URS Angono who is a
graduate of Tourism on January 5, 2018. Assume the accounts are closed and
financial statements are prepared each month. The company occupies rented of-
fice space from Fuentes Building but owns office equipment estimated to have a
useful life of 10 years. The adjusted trial balance for Tours and Travel at Decem-
ber 31, 2018 is shown below:
Tours and Travel
Adjusted Trial Balance
For the year ending December 31, 2018

Account Titles
Required:
1. Prepare a Statement of Comprehensive Income
2. Prepare closing entries
3. Prepare post closing trial balance
Learning Task 3:
Multiple Choice
1. The data for preparing closing entries come from
a. Statement of Financial Position c. Statement of Comprehensive Income

2. The purpose of closing entries is to

a. Clear the account with debit balances c. Clear the nominal accounts
b. Determine the revenues of the period d. Clear the real accounts
3. A post closing trial balance includes the following except
a. Assets c. Equity
b. Liabilities d. Revenue
4. The seventh step in the accounting cycle is
d. Closing entries f. Financial statements
e. Adjusting entries g. Post closing trial balance
5. The third step in the accounting cycle is
d. Journalizing f. adjusting entries
e. Posting g. financial statements
Learning Task 4:
On the numbered spaces provided, place the letters of the events in sequential or-
der, 1 being the first, and 10 the last.

______ A Preparing the SCE _____F Preparing business document

_______B Preparing SCI _____G Analyzing the transactions
_______C Journalizing the _____H Preparing the trial balance
transactions
_____I Determining ledger account bal-
_______D Preparing SFP ances
_______E Posting to the ledger
_____J Occurrence of the transactions
Week 10:
LT1
1. Dec 31
2. Two
3. Insurance Expense
4. Prepaid Insurance
5. P200.00
6. SFP: Specifically the Asset portion will be overstated because of the Prepaid In-
surance expense was not adjusted.
SCI: Expenses is understated therefore Profit will be overstated
LT2
1. A. Dec 31 Unearned rent income 11,000
Rent income 11,000
B. Dec 31 Rent income 22,000
Unearned rent income 22,000
2. Dec 31 Salaries Expense 5,000
Accrued Salaries 5,000
3. Dec 31 Accrued rent income 10,000
Rent income 10,000
LT3
1. Original Entry
A.
Nov 1 Cash 90,000
Unearned rent income 90,000
Adjusting Entry
Dec 31 Unearned rent income 30,000
Rent income 30,000
Answers
B.

Original Entry
Nov 1 Cash 90,000

Rent income 90,000

Adjusting Entries
Dec 31 Rent income 60,000
Unearned rent income 60,000

2. Salary Expense 5,000

Accrued salaries payable 5,000

3. Salary Expense 3,000

Accrued salaries payable 3,000

4. Accrued interest income/Interest receivable 83.33

(10,000 X 10%/12)
Interest Income 83.33

5. Utilities expense 25,000

Utilities payable 25,000

LT4

A. Interest income
B. Unearned rent income

C. Unearned interest income

D. Revenue

E. Unearned service income

WEEK 11

LT1
Varies Answers
LT2
Tours and Travel
Statement of Comprehensive Income
For the year ended December 31, 2018
SERVICE REVENUE 195,000
LESS: EXPENSES
Advertising Expense 15,000
Salaries Expense 50,750
Rent Expense 60,000
Depreciation Expense 350
Total Expenses 126,100
NET PROFIT 68,900
B. Closing Entries
2018
Dec 31 Service Revenue 195,000
Income Summary 195,000
To close revenue account
Income Summary 126,100
Advertising Expense 15,000
Salaries Expense 50,750
Rent Expense 60,000
Depreciation Expense 350
To close the expense account
Tejada, Capital 10,000
Tejada, Drawing 10,000
To close the drawing account
Income Summary 68,900
Tejada, Capital 68,900
To close the icome summary account
 Tours and Travel
Post Closing Trial Balance
For the year ended December 31, 2018
Account Titles Debit Credit
Cash 50,000
Accounts Receivable 25,000
Prepaid Expenses 5,000
Office Equipment 3,500
Accum Depm. Off Eqpt 350
Accounts Payable 4,250
Tejada, Capital 78,900
Total 83,600 83,600
LT3
1. C 2. C 3. D 4. F 5. E
LT4
9 A. 2 F.
8 B. 3 G.
4 C. 7 H.
10 D. 6 I.
5 E. 1 J.
 References

Reference Listing
Books:
Arganda A.M, Atis, T.C., (2009). Principles of Accounting. Fourth Edition. Nation-
al Bookstore.
Valencia E.G., Roxas, G.F. (2014-2015). Basic Accounting. Fourth Edition. Va-
lencia Educational Supply. Baguio City.

Manual:
Teaching Guide for Senior High School. (2016). Fundamentals of Accountancy,,
Business, and Management 1. Commission on Higher Education. Quezon
City.
Para sa mga katanungan o puna, sumulat o tumawag sa:

Department of Education Division Rizal Office

Address: DepEd Bldg.,Cabrera Rd.,Bgy. Dolores,Taytay,Rizal 1920

Telephone number: 09274562115/09615294771