Chapter

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 Adjusting Entries and the Work Sheet

Learning Objective

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

1

Prepare end-of-period adjustments.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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.

End-of-Period Adjustments

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Principle states that revenues should be recognized when earned, regardless of when cash is received from the customer. Provides the best measure of net income. Revenues are considered earned when a service is provided or a product is sold.

Revenue Recognition Principle

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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

Matching Principle

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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

Fiscal Year

Learning Objective

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2

Post adjusting entries to the general ledger.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Let’s look at some adjusting entries for Damon’s Campus Delivery.

Adjusting Entries

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TB

During June, Damon purchased supplies for $80. These were debited to the supplies account.

Supplies

SUPPLIES 80 PURCHASED

IN JUNE

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

During June, Damon purchased supplies for $80. These were debited to the supplies account.

Supplies (cont.)

SUPPLIES 80

Bal. 80

According to an inventory of supplies, there are only $20

of supplies on hand at the end of June.

TB

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

During June, Damon purchased supplies for $80. These were debited to the supplies account.

Supplies (cont.)

SUPPLIES 80

Bal. 80

But unless there is an adjusting entry made, $80 of supplies will be

shown on the balance sheet.

TB

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

During June, Damon purchased supplies for $80. These were debited to the supplies account.

Supplies (cont.)

SUPPLIES 80

Bal. 80 ADJUSTING ENTRY

NEEDED!!!!

TB

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Supplies (cont.)

SUPPLIES 80

Bal. 80 $80 Purchased during month – 20 Supplies remaining

$60 Supplies used

TB

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Supplies (cont.)

SUPPLIES 80

Bal. 80 $60 is credited to

Supplies to remove the amount of supplies used during June.

60

TB

Adj.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Supplies (cont.)

SUPPLIES 80

Bal. 80

$60 is debited to Supplies Expense to recognize the amount of supplies used during June.

60

SUPPLIES EXPENSE

60 TB

Adj.

Adj.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Supplies (cont.)

SUPPLIES 80

Bal. 80 60

60 TB

Adj.

Adj.

Now the balance sheet will show $20

of supplies!

20 Bal.

SUPPLIES EXPENSE

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Supplies (cont.)

SUPPLIES 80

Bal. 80 60

60 TB

Adj.

Adj.

20 Bal. The income statement

will show $60 of supplies used during June.

Bal. 60

SUPPLIES EXPENSE

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TB

During June, Damon paid $200 for an eight-month liability insurance policy with coverage beginning on June 1.

Prepaid Insurance

PREPAID INSURANCE 200 8-month policy

June 1–Jan. 31

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

During June, Damon paid $200 for an eight-month liability insurance policy with coverage beginning on June 1.

Prepaid Insurance (cont.)

TB

PREPAID INSURANCE 200 Now that June is over, we

need to remove the cost of one month’s insurance

from this account.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Prepaid Insurance (cont.)

PREPAID INSURANCE 200

$200 for 8 months: $200 ÷ 8 = $25 per month

TB

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Prepaid Insurance (cont.)

PREPAID INSURANCE 200

Prepaid Insurance is credited for $25 to remove June’s insurance coverage

that has expired.

25

TB

Adj.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Prepaid Insurance (cont.)

PREPAID INSURANCE

200

25

INSURANCE EXPENSE

25

Insurance Expense is debited for $25 to recognize the amount

of insurance coverage for June.

TB

Adj.

Adj.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Prepaid Insurance (cont.)

PREPAID INSURANCE

200

25

INSURANCE EXPENSE

25 TB

Adj.

Adj.

The balance sheet will show $175 (7 months) of prepaid insurance!

Bal. 175

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Posting The Adjusting Entries in the General Ledger

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Prepaid Insurance (cont.)

PREPAID INSURANCE

200

25

INSURANCE EXPENSE

25 TB

Adj.

Adj.

Bal. 175

The income statement will show $25 (1 month) of insurance consumed!

Bal. 25

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Damon paid his part-time employees $650 on June 27. Since then, they have earned an additional $50, but have not yet been paid.

Wages Expense

WAGES EXPENSE 650

650 Bal. $650 does not include all of the wages earned by employees

during June.

TB

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Damon paid his part-time employees $650 on June 27. Since then, they have earned an additional $50, but have not yet been paid.

Wages Expense (cont.)

WAGES EXPENSE 650

650 Bal.

An ADJUSTING ENTRY is needed!

TB

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Wages Expense (cont.)

WAGES EXPENSE 650

$50 debit to Wages Expense for the additional wages

earned during June.

50

TB

Adj.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Wages Expense (cont.)

650

Damon owes the employees for the additional wages.

This liability is recorded in the wages payable account.

50

50

Adj.

TB Adj.

WAGES EXPENSE

WAGES PAYABLE

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Wages Expense (cont.)

WAGES EXPENSE

650

50

WAGES PAYABLE

50 Adj.

TB Adj.

The income statement will show ALL wages earned by employees in June!

Bal. 700

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Wages Expense (cont.)

650

50

50 Adj.

TB Adj.

Bal. 700

The balance sheet will show the liability for wages earned in June that will be paid in July.

Bal. 50

WAGES EXPENSE

WAGES PAYABLE

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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.

Historical Cost Principle

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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.

Useful Life

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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.

Depreciation Expense

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The expected market value or selling price of an asset at the end of its useful life Also called:

Scrap value, or Residual value

Salvage Value

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Damon has motor scooters with an estimated useful live of 3 years, no salvage value, and an original cost of $3,600.

Straight-Line Depreciation Example

Because Damon expects the scooters to be of no value when the 3 years

are over, the whole $3,600 cost needs to be spread over the next 3 years.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

1st step: Calculate the depreciable cost.

Straight-Line Depreciation Example

FORMULA:

Original Cost

Salvage Value =

Depreciable Cost

$3,600 $0 = $3,600

–

–

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2nd step: Determine depreciation expense for this accounting period.

Straight-Line Depreciation Example

FORMULA:

Depreciable Cost

Estimated Useful Life

$3,600

Since we are trying to compute depreciation for one month, we will use months instead

of years.

=

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2nd step: Determine depreciation expense for this accounting period.

Straight-Line Depreciation Example

FORMULA:

Depreciable Cost

Estimated Useful Life

$3,600 36 months

=

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2nd step: Determine depreciation expense for this accounting period.

Straight-Line Depreciation Example

FORMULA:

Depreciable Cost

Estimated Useful Life

$3,600 36 months

= = $100 per month

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Now that we know depreciation for June is $100, let’s figure out the adjusting entry.

Depreciation Expense

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Depreciation

DELIVERY EQUIPMENT 3,600

We do NOT adjust this account. It should always reflect the

ORIGINAL COST of the asset.

TB

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Accumulated Depreciation

DELIVERY EQUIPMENT 3,600

Depreciation is credited to this account instead of the asset account.

ACCUMULATED DEPRECIATION—

DELIVERY EQUIPMENT 100 TB Adj.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The value carried on the books or in the accounting records Book Value = Cost of Plant Assets – Accumulated Depreciation Also called undepreciated cost

Book Value

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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

Accumulated Depreciation

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Depreciation Expense

DELIVERY EQUIPMENT

3,600

ACCUMULATED DEPRECIATION—

DEL. EQUIP. 100

DEPRECIATION EXPENSE—DEL. EQUIP. 100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 5-14

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 5-14 (Continued)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 5-14 (Concluded)

Learning Objective

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

3

Prepare a work sheet.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Pulls together all of the information needed to: Enter adjusting entries Prepare financial statements

Is not a financial statement Prepared through an Excel Worksheet. Is not a formal part of the accounting system Ordinarily, only the accountant uses a work sheet Commonly in a 10-column format

The Work Sheet

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 STEPS Prepare the Trial Balance. Prepare the Adjustments. Prepare the Adjusted Trial Balance. Extend Adjusted Balances to the Income Statement and Balance Sheet columns. Complete the Work Sheet.

Preparing the Work Sheet

Damon’s Campus Delivery Work Sheet For Month Ended June 30, 20--

TRIAL BALANCE DEBIT CREDIT

ACCOUNT TITLE

Heading includes: Name of the company

Name of the working paper Date of the accounting

period just ended

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Damon’s Campus Delivery Work Sheet

For Month Ended June 30, 20-- TRIAL BALANCE DEBIT CREDIT

ACCOUNT TITLE

Step #1: Prepare the trial balance (before any adjustments)

in the first pair of amount columns.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BALANCE DEBIT CREDIT ACCOUNT TITLE

Cash DEBIT CREDIT

ADJUSTMENTS

Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr.—Del. Equip. Accounts Payable Wages Payable D. Williams, Capital

Delivery Fees Wages Expense

D. Williams, Drawing

Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp.—Del. Equip.

370 650 80

200 3,600

1,800

2000 150

2150 650 200

50

5,950 5,950

This is the same trial balance

from Chapter 3, now being shown

on a 10-column work sheet.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BALANCE DEBIT CREDIT ACCOUNT TITLE

Cash DEBIT CREDIT

ADJUSTMENTS

Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr.—Del. Equip. Accounts Payable Wages Payable D. Williams, Capital

Delivery Fees Wages Expense

D. Williams, Drawing

Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp.—Del. Equip.

370 650 80

200 3,600

1,800

2,000 150

2,150 650 200

50

5,950 5,950

Step #2: Prepare the adjustments.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BALANCE DEBIT CREDIT ACCOUNT TITLE

Cash DEBIT CREDIT

ADJUSTMENTS

Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr.—Del. Equip. Accounts Payable Wages Payable D. Williams, Capital

Delivery Fees Wages Expense

D. Williams, Drawing

Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp.—Del. Equip.

370 650 80

200 3,600

1,800

2,000 150

2,150 650 200

50

5,950 5,950

Let’s record the supplies adjustment we computed earlier:

$60 debit to Supplies Expense; $60 credit to Supplies.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BALANCE DEBIT CREDIT ACCOUNT TITLE

Cash DEBIT CREDIT

ADJUSTMENTS

Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr.—Del. Equip. Accounts Payable Wages Payable D. Williams, Capital

Delivery Fees Wages Expense

D. Williams, Drawing

Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp.—Del. Equip.

370 650 80

200 3,600

1,800

2,000 150

2,150 650 200

50

5,950 5,950

60 (a)

60 (a)

Adjustments are identified with a letter in parentheses.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BALANCE DEBIT CREDIT ACCOUNT TITLE

Cash DEBIT CREDIT

ADJUSTMENTS

Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr.—Del. Equip. Accounts Payable Wages Payable D. Williams, Capital

Delivery Fees Wages Expense

D. Williams, Drawing

Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp.—Del. Equip.

370 650 80

200 3,600

1,800

2,000 150

2,150 650 200

50

5,950 5,950

60 (a)

60 (a)

The remaining adjustments are entered on the work sheet and the

Adjustments columns are totaled.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BALANCE DEBIT CREDIT ACCOUNT TITLE

Cash DEBIT CREDIT

ADJUSTMENTS

Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr.—Del. Equip. Accounts Payable Wages Payable D. Williams, Capital

Delivery Fees Wages Expense

D. Williams, Drawing

Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp.—Del. Equip.

370 650 80

200 3,600

1,800

2,000 150

2,150 650 200

50

5,950 5,950

60 (a)

60 (a) 25 (b)

25 (b)

50 (c)

50 (c)

100 (d)

100 (d)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BALANCE DEBIT CREDIT ACCOUNT TITLE

Cash DEBIT CREDIT

ADJUSTMENTS

Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accum. Depr.—Del. Equip. Accounts Payable Wages Payable D. Williams, Capital

Delivery Fees Wages Expense

D. Williams, Drawing

Rent Expense Supplies Expense Telephone Expense Insurance Expense Depr. Exp.—Del. Equip.

370 650 80

200 3,600

1,800

2,000 150

2,150 650 200

50

5,950 5,950

60 (a)

60 (a) 25 (b)

25 (b)

50 (c)

50 (c)

100 (d)

100 (d) 235 235

The Adjustments columns

BALANCE!!!

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BAL. ACCOUNT TITLE

Cash

ADJUSTMENTS

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

370 650

200 3600

1800

2000 150

2150 650 200

50

5950 5950

60 (a)

60 (a) 25 (b)

25 (b)

50 (c)

50 (c)

100 (d)

100 (d) 235 235

80

Step #3: Prepare the adjusted trial balance.

DR. CR. CR. DR. ADJ. TRIAL BAL.

DR. CR.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BAL. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

ADJUSTMENTS

Accts. Rec. Supplies Ppd. Ins. Del. Eq A. D..-Del Eq. Accts Pay Wages Pay D. W., Cap

Del. Fees Wages Exp.

D. W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

370 650

200 3600

1800

2000 150

2150 650 200

50

5950 5950

60 (a)

60 (a) 25 (b)

25 (b)

50 (c)

50 (c)

100 (d)

100 (d) 235 235

80

CR. DR. ADJ. TRIAL BAL.

Balance before Adjustments +/– Adjustment =

Adjusted Balance

$370 +/– $0 = $370

370

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BAL. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

ADJUSTMENTS

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del Eq. Accts. Pay. Wages Pay D.W., Cap

Del. Fees Wages Exp

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

370 650

200 3600

1800

2000 150

2150 650 200

50

5950 5950

60 (a)

60 (a) 25 (b)

25 (b)

50 (c)

50 (c)

100 (d)

100 (d) 235 235

80

CR. DR. ADJ. TRIAL BAL.

Balance before Adjustments

+/– Adjustment = Adjusted Balance

$650 +/– $0 = $650

370 650

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BAL. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

ADJUSTMENTS

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts Pay Wages Pay D.WJ., Cap

Del. Fees Wages Exp

D.WJ., Drawing

Rent Exp Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

370 650

200 3600

1800

2000 150

2150 650 200

50

5950 5950

60 (a)

60 (a) 25 (b)

25 (b)

50 (c)

50 (c)

100 (d)

100 (d) 235 235

80

CR. DR. ADJ. TRIAL BAL.

Balance before Adjustments

+/– Adjustment = Adjusted Balance

$80 – $60 = $20

370 650 20

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BAL. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

ADJUSTMENTS

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp Tel. Exp Ins. Exp. D. E.–Del. Eq.

370 650

200 3600

1800

2000 150

2150 650 200

50

5950 5950

60 (a)

60 (a) 25 (b)

25 (b)

50 (c)

50 (c)

100 (d)

100 (d) 235 235

80

CR. DR. ADJ. TRIAL BAL.

370 650 20

This process continues until ALL accounts are included in the

Adjusted Trial Balance columns.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TRIAL BAL. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

ADJUSTMENTS

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay D.W., Cap.

Del. Fees Wages Exp

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

370 650

200 3600

1800

2000 150

2150 650 200

50

5950 5950

60 (a)

60 (a) 25 (b)

25 (b)

50 (c)

50 (c)

100 (d)

100 (d) 235 235

80

CR. DR. ADJ. TRIAL BAL.

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50 25

100 6100 6100

The Adjusted Trial Balance columns

balance!!!!

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay D.W., Cap.

Del. Fees Wages Exp

D.W., Drawing

Rent Exp Sup. Exp. Tel. Exp. Ins. Exp D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650

20 175

3600 100

1800 50

2000 150

2150 700 200 60 50 25

100 6100 6100

Step #4: Extend adjusted balances to the Income Statement and

Balance Sheet columns.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay D.W., Cap

Del. Fees Wages Exp

D.W., Drawing

Rent Exp Sup. Exp Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50 25

100 6100 6100

Each account in the Adjusted Trial Balance columns

is extended to either the Income Statement columns

or the Balance Sheet columns, but not both.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay D.W., Cap.

Del. Fees Wages Exp

D.W., Drawing

Rent Exp Sup. Exp Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50 25

100 6100 6100

The Income Statement columns include all accounts found on the

income statement… REVENUES AND EXPENSES

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay D.W., Cap.

Del. Fees Wages Exp

D.W., Drawing

Rent Exp Sup. Exp Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50 25

100 6100 6100

The Balance Sheet columns include the remaining accounts…

ASSETS, LIABILITIES, CAPITAL, AND DRAWING

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650

20 175

3600 100

1800 50

2000 150

2150 700 200 60 50

100 6100 6100

370 650 20

175 3600

25

ASSETS

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650

20 175

3600 100

1800 50

2000 150

2150 700 200 60 50

100 6100 6100

370 650 20

175 3600

100

25

CONTRA-ASSET

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

100 6100 6100

370 650 20

175 3600

100 1800

50

25

LIABILITIES

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

100 6100 6100

370 650 20

175 3600

100 1800

50 2000

25

CAPITAL

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

100 6100 6100

370 650 20

175 3600

100 1800

50 2000

150

25

DRAWING

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

100 6100 6100

370 650 20

175 3600

100 1800

50 2000

150 2150

25

REVENUE

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

6100 6100

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

EXPENSES

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del Eq. Accts Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650

20 175

3600 100

1800 50

2000 150

2150 700 200 60 50

25 100

6100 6100

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

Step#5: Complete the work sheet. a. Rule and total the Income Statement

and Balance Sheet columns.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650

20 175

3600 100

1800 50

2000 150

2150 700 200 60 50

25 100

6100 6100

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

1135 2150 4965 3950

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

6100 6100

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

1135 2150 4965 3950

Step #5: Complete the work sheet. b. Calculate the difference between

the Income Statement Debit and Credit columns.

($2,150 – $1,135 = $1,015)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W, Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

6100 6100

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

1135 2150 4965 3950

Step #5: Complete the work sheet. c. Calculate the difference between

the Balance Sheet Debit and Credit columns.

($4,965 – $3,950 = $1,015)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650

20 175

3600 100

1800 50

2000 150

2150 700 200 60 50

25 100

6100 6100

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

1135 2150 4965 3950

The differences are the same!!!! The work sheet balances!!!

Since the Income Statement Credit column (REVENUES) exceeds the Income Statement Debit

column (EXPENSES), the difference is called NET INCOME.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

DR. CR. ACCOUNT

TITLE Cash

DR. CR. INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650

20 175

3600 100

1800 50

2000 150

2150 700 200 60 50

25 100

6100 6100

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

1135 2150 4965 3950

Step #5: Complete the work sheet. d. Add the net income to the Income Statement Debit and

the Balance Sheet Credit column (columns with the smallest totals).

ADJ. T. B.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

6100 6100

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

1135 2150 4965 3950

Step #5: Complete the work sheet. e. Total and double rule (underline) the columns.

1015 1015 Net Income © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJ. T. B. DR. CR.

ACCOUNT TITLE

Cash DR. CR.

INCOME STMT.

Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts. Pay. Wages Pay. D.W., Cap.

Del. Fees Wages Exp.

D.W., Drawing

Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

CR. DR. BALANCE SHEET

370 650

20 175

3600 100

1800 50

2000 150

2150 700 200 60 50

25 100

6100 6100

370 650 20

175 3600

100 1800

50 2000

150 2150

700 200 60 50

25 100

1135 2150 4965 3950 1015 1015 2150 2150 4965 4965

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objective

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

4

Describe methods for finding errors on the work sheet.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

If any of the columns on the work sheet do not balance, you must find the error before you continue.

Finding Errors on the Work Sheet

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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.

Four Tips for Finding Errors on the Work Sheet

Learning Objective

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5

Journalize adjusting entries from the work sheet.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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.

Journalizing Adjusting Entries

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Journalizing Adjusting Entries from the Work Sheet

ADJUSTING ENTRIES

DATE DESCRIPTION PR DEBIT CREDIT Adjusting Entries 1

2 3 4

5 6 7 8 9

10

Instead of an explanation after each adjusting entry, “Adjusting Entries” is

written before the first adjusting entry.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJUSTING ENTRIES

DATE DESCRIPTION PR DEBIT CREDIT Adjusting Entries 1

2 3 4

5 6 7 8 9

10

Each adjusting entry is dated the last day of the accounting

period.

June 30 20--

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJUSTING ENTRIES

DATE DESCRIPTION PR DEBIT CREDIT Adjusting Entries 1

2 3 4

5 6 7 8 9

10

June 30 20-- Supplies Expense 60 00

Supplies 60 00

30 Insurance Expense 25 00 25 00 Prepaid Insurance

30 Wages Expense 50 00 Wages Payable 50 00

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ADJUSTING ENTRIES

DATE DESCRIPTION PR DEBIT CREDIT Adjusting Entries (cont.) 1

2 3 4

5 6 7 8 9

10

30 Depr. Exp.—Del. Equip. 100 00 Accum. Depr.—Del. Equip. 100 00

June 20--

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

POSTING THE ADJUSTING ENTRIES

Account: Account No.

DATE ITEM PR DR. CR. BALANCE

DR. CR.

Supplies Expense 523

20-- June 30 Adjusting

Posting adjusting entries is the same as posting other entries

except “Adjusting” is written in the item area.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

POSTING THE ADJUSTING ENTRIES

Account: Account No.

DATE ITEM PR DR. CR. BALANCE

DR. CR.

Supplies Expense 523

20-- June 30 Adjusting 60 60

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objective

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6

Explain the cash, modified cash, and accrual bases of accounting.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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

Accrual Basis of Accounting

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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

Cash Basis of Accounting

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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

Modified Cash Basis