Adjusting Entries

1. Adjusting entries for ending merchandise inventory Pro-forma entry: Merchandise Inventory, end xxx Income Summary xxx To record ending inventory for the period

2. Adjusting entries for accruals Accrued income – income already earned but not yet collected Accrued expense – expense already incurred but not yet paid

Pro-forma entries: a. Recognition of accrued income: Accrued Income xxx Income/Revenue xxx To accrue (specific income) for the year/period

b. Recognition of accrued expense: Expense xxx Accrued Expense xxx To accrue (specific expense) for the year/period

3. Adjusting entries for deferrals Pro-forma entries: a. Prepaid expense – expenses paid (in cash) in advance but not yet incurred i. Asset method Expense xxx Prepaid Expense xxx To recognize expired portion of prepayment

ii. Expense method Prepaid Expense xxx Expense xxx To recognize asset portion of prepayment

b. Unearned Income – income already received (in cash) in advance but not yet earned i. Liability method Unearned Income xxx Income/Revenue xxx To recognize earned portion of revenues received in advance

ii. Income method Income/Revenue xxx Unearned Income xxx To recognize liability portion of revenues received in advance

4. Adjusting entries for depreciation Depreciation ➢ The systematic and rational allocation of fixed assets’ (PPE) cost over its estimated