Heintz & Parry. 20 th Edition. College Accounting
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1 Heintz & Parry 20 th Edition College Accounting
2 Chapter 5 Adjusting Entries and the Work Sheet
3 1 Prepare end-of-period adjustments.
4 Changes occur that affect the business s financial condition: Equipment wearing out Prepaid insurance and supplies being used up Employees earning wages that have not yet been paid Since these events have not been entered into the accounting system, ADJUSTING ENTRIES must be made.
5 Requires the matching of REVENUES EARNED during an accounting period with the EXPENSES INCURRED Provides the best measure of net income Necessitates accounts be brought up to date before financial statements are prepared
6 A 12-month period of time used as an accounting period Does not need to be the same as a calendar year Many businesses schedule their fiscal year to end when business is slow
7 2 Post adjusting entries to the general ledger.
8 Let s look at some adjusting entries for Jessie Jane s Campus Delivery.
9 During June, Jessie purchased supplies for $80. These were debited to the supplies account. PURCHASED IN JUNE TB SUPPLIES 80
10 During June, Jessie purchased supplies for $80. These were debited to the supplies account. TB Bal. 80 SUPPLIES 80 According to an inventory of supplies, there are only $20 of supplies on hand at the end of June.
11 During June, Jessie purchased supplies for $80. These were debited to the supplies account. TB Bal. 80 SUPPLIES 80 But unless there is an adjusting entry made, $80 of supplies will be shown on the balance sheet.
12 During June, Jessie purchased supplies for $80. These were debited to the supplies account. TB Bal. 80 SUPPLIES 80 ADJUSTING ENTRY NEEDED!!!!
13 TB SUPPLIES 80 Bal. 80 $80 Purchased during month 20 Supplies remaining $60 Supplies used
14 TB SUPPLIES 80 Bal. 80 Adj. 60 $60 is credited to Supplies to remove the amount of supplies used during June.
15 TB SUPPLIES 80 SUPPLIES EXPENSE Adj. 60 Bal. 80 Adj. 60 $60 is debited to Supplies Expense to recognize the amount of supplies used during June.
16 TB SUPPLIES 80 SUPPLIES EXPENSE Adj. 60 Bal. 80 Bal. 20 Adj. 60 Now the balance sheet will show $20 of supplies!
17 TB SUPPLIES 80 SUPPLIES EXPENSE Adj. 60 Bal. 80 Bal. 20 Adj. 60 Bal. 60 The income statement will show $60 of supplies used during June.
18 During June, Jessie paid $ for an eight-month liability insurance policy with coverage beginning on June 1. 8-month policy June 1 Jan. 31 PREPAID INSURANCE TB
19 During June, Jessie paid $ for an eight-month liability insurance policy with coverage beginning on June 1. PREPAID INSURANCE TB Now that June is over, we need to remove the cost of one month s insurance from this account. 19
20 PREPAID INSURANCE TB $ for 8 months: $ 8 = $25 per month
21 PREPAID INSURANCE TB Adj. 25 Prepaid Insurance is credited for $25 to remove June s insurance coverage that has expired.
22 TB PREPAID INSURANCE INSURANCE EXPENSE Adj. 25 Adj. 25 Insurance Expense is debited for $25 to recognize the amount of insurance coverage for June.
23 TB PREPAID INSURANCE Adj. INSURANCE EXPENSE 25 Adj. 25 Bal. 175 The balance sheet will show $175 (7 months) of prepaid insurance!
24 TB PREPAID INSURANCE Bal. 175 Adj. 25 Adj. INSURANCE EXPENSE 25 Bal. 25 The income statement will show $25 (1 month) of insurance consumed! 24
25 Jessie paid her part-time employees $6 on June 27. Since then, they have earned an additional $, but have not yet been paid. TB $6 does not include all of the wages earned by employees during June. WAGES EXPENSE 6 Bal. 6
26 Jessie paid her part-time employees $6 on June 27. Since then, they have earned an additional $, but have not yet been paid. TB Bal. WAGES EXPENSE 6 6 An ADJUSTING ENTRY is needed!
27 WAGES EXPENSE 6 TB Adj. $ debit to Wages Expense for the additional wages earned during June.
28 WAGES EXPENSE 6 TB Adj. WAGES PAYABLE Adj. Jessie Jane owes the employees for the additional wages. This liability is recorded in the wages payable account.
29 WAGES EXPENSE 6 TB Adj. Bal. 700 WAGES PAYABLE Adj. The income statement will show ALL wages earned by employees in June!
30 WAGES EXPENSE TB 6 Adj. Bal. 700 WAGES PAYABLE Adj. Bal. The balance sheet will show the liability for wages earned in June that will be paid in July.
31 Assets are recorded at their actual cost. The cost remains on the books as long as the business owns the asset. No adjustments are made for changes in the market value of the asset.
32 The period of time that an asset is expected to help produce revenues. Useful life expires as a result of wear and tear or because it no longer satisfies the needs of the business. As this happens, depreciation expense should be recognized and the value of the asset should be reduced.
33 Depreciation is a method of matching an asset s original cost against the revenue produced over the useful life. There are many depreciation methods. (We will use the straight-line method.) Depreciation expense is based on estimates of useful lives and salvage values.
34 The expected market value or selling price of an asset at the end of its useful life Also called: Scrap value, or Residual value
35 Jessie has motor scooters with an estimated useful live of 3 years, no salvage value, and an original cost of $3,600. Because Jessie expects the scooters to be of no value when the three years are over, the whole $3,600 cost needs to be spread over the next three years.
36 1st step: Calculate the depreciable cost. FORMULA: Original Cost Salvage Value = Depreciable Cost $3,600 $0 = $3,600
37 2nd step: Determine depreciation expense for this accounting period. FORMULA: Depreciable Cost Estimated Useful Life = $3,600 Since we are trying to compute depreciation for one month, we will use months instead 37 of years.
38 2nd step: Determine depreciation expense for this accounting period. FORMULA: Depreciable Cost Estimated Useful Life = $3, months
39 2nd step: Determine depreciation expense for this accounting period. FORMULA: Depreciable Cost Estimated Useful Life $3,600 = = 36 months $ per month
40 Now that we know depreciation for June is $, let s figure out the adjusting entry.
41 TB DELIVERY EQUIPMENT 3,600 We do NOT adjust this account. It should always reflect the ORIGINAL COST of the asset.
42 TB DELIVERY EQUIPMENT 3,600 ACCUMULATED DEPRECIATION DELIVERY EQUIPMENT Adj. Depreciation is credited to this account instead of the asset account.
43 Is a contra-asset account Contra means opposite Has a credit balance (the opposite of an asset) Is deducted from the related asset account on the balance sheet
44 The value carried on the books or in the accounting records Book Value = Cost of Plant Assets Accumulated Depreciation Also called undepreciated cost
45 DELIVERY EQUIPMENT 3,600 ACCUMULATED DEPRECIATION DEL. EQUIP. DEPRECIATION EXPENSE DEL. EQUIP.
46 3 Prepare a work sheet.
47 Pulls together all of the information needed to: Enter adjusting entries Prepare financial statements Is not a financial statement Is not a formal part of the accounting system Ordinarily, only the accountant uses a work sheet Commonly in a 10-column format
48 5 STEPS 1. Prepare the Trial Balance. 2. Prepare the Adjustments. 3. Prepare the Adjusted Trial Balance. 4. Extend Adjusted Balances to the Income Statement and Balance Sheet columns. 5. Complete the Work Sheet.
49 Jessie Jane s Campus Delivery Work Sheet For Month Ended June 30, 20-- TRIAL BALANCE ACCOUNT TITLE DEBIT CREDIT Heading includes: Name of the company Name of the working paper Date of the accounting period just ended 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
50 Jessie Jane s Campus Delivery Work Sheet For Month Ended June 30, 20-- ACCOUNT TITLE TRIAL BALANCE DEBIT CREDIT Step #1: Prepare the trial balance (before any adjustments) in the first pair of amount columns Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
51 ACCOUNT TITLE Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr. Del. Equip. Accounts Payable Wages Payable Jessica Jane, Capital Jessica Jane, Drawing Delivery Fees Wages Expense Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp. Del. Equip. TRIAL BALANCE DEBIT CREDIT , ,800 0 This is the same 21 trial balance 6 from Chapter 3, now being shown on a 10-column work sheet. 5,9 5,9 ADJUSTMENTS DEBIT CREDIT 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
52 ACCOUNT TITLE Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr. Del. Equip. Accounts Payable Wages Payable Jessica Jane, Capital Jessica Jane, Drawing Delivery Fees Wages Expense Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp. Del. Equip. TRIAL BALANCE DEBIT CREDIT , ,800 2,000 2,1 Step #2: Prepare the adjustments. 5,9 5,9 ADJUSTMENTS DEBIT CREDIT 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
53 ACCOUNT TITLE Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr. Del. Equip. Accounts Payable Wages Payable Jessica Jane, Capital Jessica Jane, Drawing Delivery Fees Wages Expense Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp. Del. Equip. TRIAL BALANCE DEBIT CREDIT ,600 1,800 2,000 Let s record the supplies 1 adjustment we computed earlier: 2,1 6 $60 debit to Supplies Expense; $60 credit to Supplies. 5,9 5,9 ADJUSTMENTS DEBIT CREDIT 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
54 ACCOUNT TITLE Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr. Del. Equip. Accounts Payable Wages Payable Jessica Jane, Capital Jessica Jane, Drawing Delivery Fees Wages Expense Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp. Del. Equip. TRIAL BALANCE DEBIT CREDIT ,600 Adjustments are identified 1 with a letter in parentheses. 6 1,800 2,000 2,1 5,9 5,9 ADJUSTMENTS DEBIT CREDIT (a) 60 (a) Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
55 ACCOUNT TITLE Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr. Del. Equip. Accounts Payable Wages Payable Jessica Jane, Capital Jessica Jane, Drawing Delivery Fees Wages Expense Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp. Del. Equip. TRIAL BALANCE DEBIT CREDIT ,600 1,800 The remaining adjustments 2,000 are entered 1 on the 2,1 6 work sheet and the Adjustments columns are totaled. 5,9 5,9 ADJUSTMENTS DEBIT CREDIT (a) 60 (a) Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
56 ACCOUNT TITLE Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr. Del. Equip. Accounts Payable Wages Payable Jessica Jane, Capital Jessica Jane, Drawing Delivery Fees Wages Expense Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp. Del. Equip. TRIAL BALANCE DEBIT CREDIT , ,800 2,000 2,1 5,9 5,9 ADJUSTMENTS DEBIT CREDIT (a) (b) (d) (c) (c) (a) 60 (b) 25 (d) 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
57 ACCOUNT TITLE Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr. Del. Equip. Accounts Payable Wages Payable Jessica Jane, Capital Jessica Jane, Drawing Delivery Fees Wages Expense Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp. Del. Equip. TRIAL BALANCE DEBIT CREDIT , ,800 2,000 2,1 5,9 5,9 ADJUSTMENTS DEBIT CREDIT (a) (b) (d) (c) (c) The Adjustments (a) columns 60 (b) BALANCE!!! 25 (d) Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
58 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. TRIAL BAL ADJUSTMENTS (a) 60 (a) (b) (d) (c) Step #3: Prepare the (c) adjusted trial balance. (b) 25 (d) ADJ. TRIAL BAL Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
59 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq A. D..-Del Eq. Accts Pay Wages Pay J. J., Cap J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. TRIAL BAL Balance before Adjustments ADJUSTMENTS (a) 60 (a) (b) (b) 25 (d) ADJ. TRIAL BAL. (d) 1800 (c) 0 +/ Adjustment = Adjusted (c) $ +/ $0 = $ Balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
60 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del Eq. Accts. Pay. Wages Pay J. J., Cap J. J., Drawing Del. Fees Wages Exp Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. TRIAL BAL Balance before 1 Adjustments ADJUSTMENTS (c) (a) 60 (a) (b) (d) (c) (b) 25 (d) ADJ. TRIAL BAL. 6 $6 +/ $0 = $6 +/ Adjustment = Adjusted Balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
61 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts Pay Wages Pay J. J., Cap J. J., Drawing Del. Fees Wages Exp Rent Exp Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. TRIAL BAL Balance 1 before 21 Adjustments ADJUSTMENTS (a) 60 (a) (b) (b) 25 (d) ADJ. TRIAL BAL. (d) $ $60 (c) = $20 +/ Adjustment = Adjusted Balance (c) Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
62 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp Tel. Exp Ins. Exp. D. E. Del. Eq. TRIAL BAL ADJUSTMENTS (a) (b) ADJ. TRIAL BAL (d) 1800 (c) 0 1 This process continues 21 until ALL accounts 6 (c) are included in the Adjusted (a) Trial 60 Balance columns. (b) 25 (d) Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
63 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay J. J., Cap. J. J., Drawing Del. Fees Wages Exp Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. TRIAL BAL ADJUSTMENTS (a) (b) (d) (c) (c) (a) (b) 25 (d) ADJ. TRIAL BAL The 700Adjusted balance!!!! Trial Balance columns 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
64 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay J. J., Cap. J. J., Drawing Del. Fees Wages Exp Rent Exp Sup. Exp. Tel. Exp. Ins. Exp D. E. Del. Eq. ADJ. T. B INCOME STMT. Step #4: Extend adjusted balances to the Income Statement and Balance Sheet columns. BALANCE SHEET 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
65 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay J. J., Cap J. J., Drawing Del. Fees Wages Exp Rent Exp Sup. Exp Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT Each account in the 0 1 is extended 21 to either the but not both Adjusted Trial Balance columns Income Statement columns or the Balance Sheet columns, BALANCE SHEET 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
66 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay J. J., Cap. J. J., Drawing Del. Fees Wages Exp Rent Exp Sup. Exp Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. The Income Statement columns include all accounts found on the income statement REVENUES AND EXPENSES BALANCE SHEET 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
67 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay J. J., Cap. J. J., Drawing Del. Fees Wages Exp Rent Exp Sup. Exp Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. The Balance Sheet columns include the remaining accounts ASSETS, LIABILITIES, CAPITAL, AND DRAWING BALANCE SHEET DR. CR Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
68 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. ASSETS BALANCE SHEET Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
69 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. CONTRA-ASSET BALANCE SHEET Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
70 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B. DR CR INCOME STMT. LIABILITIES BALANCE SHEET Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
71 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. CAPITAL BALANCE SHEET Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
72 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. DRAWING BALANCE SHEET Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
73 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B REVENUE INCOME STMT. 21 BALANCE SHEET Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
74 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT BALANCE SHEET EXPENSES Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
75 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del Eq. Accts Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT BALANCE SHEET Step#5: Complete the work sheet. a. Rule and total the Income Statement and Balance Sheet columns Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
76 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. BALANCE SHEET Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
77 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. BALANCE SHEET Step #5: Complete the work sheet. b. Calculate 1800the difference between the Income Statement Debit and 0 1 Credit columns. ($2,1 $1,135 = $1,015) Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
78 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. BALANCE SHEET Step #5: Complete the work sheet. c. Calculate 1800 the difference between the 0 Balance Sheet Debit and 1 Credit columns. 1 ($4,965 $3,9 = $1,015) Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
79 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. 175 The 3600differences are the same!!!! 3600 The 1800 work sheet balances!!! 0 column 1 (REVENUES) exceeds 1 the Income 21 Statement 21 Debit 700 column (EXPENSES), 700 the BALANCE SHEET 6 20 Since the Income Statement Credit difference is called NET INCOME Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
80 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. BALANCE SHEET Step #5: Complete the work sheet. d. Add 1800the net income to the Income 0 Statement Debit and 1 the Balance Sheet Credit column 1 (columns with the smallest totals) Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
81 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. Net Income ADJ. T. B INCOME STMT. BALANCE SHEET Step #5: Complete the work sheet. e. Total and double rule (underline) the columns Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
82 ACCOUNT TITLE Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E. Del. Eq. ADJ. T. B INCOME STMT. BALANCE SHEET Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
83 4 Describe methods for finding errors on the work sheet.
84 If any of the columns on the work sheet do not balance, you must find the error before you continue.
85 Check the addition of all columns. Check the addition and subtraction required when extending to the Adjusted Trial Balance columns. Make sure the adjusted account balances have been extended to the appropriate columns. Make sure that the net income or net loss has been added to the appropriate columns.
86 5
87 The work sheet helps the accountant organize the end-of-period financial information, including adjusting entries. The accounts are not adjusted until a general journal entry is made and posted to the general ledger accounts.
88 DATE DESCRIPTION PR DEBIT CREDIT Adjusting Entries Instead of an explanation after each adjusting entry, Adjusting Entries is written before the first adjusting entry Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
89 DATE DESCRIPTION PR DEBIT CREDIT 20-- June 30 Adjusting Entries Each adjusting entry is dated the last day of the accounting period Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
90 DATE DESCRIPTION PR DEBIT CREDIT 20-- June 30 Adjusting Entries Supplies Expense Supplies Insurance Expense Prepaid Insurance 30 Wages Expense Wages Payable Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
91 DATE DESCRIPTION PR DEBIT CREDIT 20-- June Adjusting Entries (cont.) 30 Depr. Exp. Del. Equip. 00 Accum. Depr. Del. Equip Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
92 Account: Supplies Expense Account No. 523 DATE ITEM PR 20-- June 30 Adjusting BALANCE Posting adjusting entries is the same as posting other entries except Adjusting is written in the item area Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
93 Account: Supplies Expense Account No. 523 DATE ITEM PR 20-- June 30 Adjusting BALANCE 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
94 6 Explain the cash, modified cash, and accrual bases of accounting.
95 Revenues are recorded when EARNED Expenses are recorded when INCURRED Recognizes receivables and payables Offers the best matching of revenues and expenses The best method of measuring income for most businesses Smaller service organizations often use the cash or modified cash basis
96 Revenues are recorded when cash is RECEIVED Expenses are recorded when cash is PAID Similar to the accrual basis if: There are few receivables, payables, and assets Can vary significantly if: A business has many receivables, payables, and assets
97 Combines aspects of the cash and accrual methods A business uses the cash basis for recording revenues and most expenses Exceptions are made when cash is paid for assets with useful lives greater than one accounting period If cash is paid for equipment, buildings, supplies, or insurance, these are recorded as assets, and adjustments are made each period as under the accrual basis
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