Acct076 Chp 5 Acctg

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Acct076 Chp 5 Acctg

  1. 1. <ul><li>College Accounting </li></ul>Heintz & Parry 20 th Edition
  2. 2. Adjusting Entries and the Work Sheet
  3. 3. 1 Prepare end-of-period adjustments.
  4. 4. END-OF-PERIOD ADJUSTMENTS <ul><li>Changes occur that affect the business’s financial condition: </li></ul><ul><ul><li>Equipment wearing out </li></ul></ul><ul><ul><li>Prepaid insurance and supplies being used up </li></ul></ul><ul><ul><li>Employees earning wages that have not yet been paid </li></ul></ul><ul><li>Since these events have not been entered into the accounting system, ADJUSTING ENTRIES must be made. </li></ul>
  5. 5. MATCHING PRINCIPLE <ul><li>Requires the matching of REVENUES EARNED during an accounting period with the EXPENSES INCURRED </li></ul><ul><li>Provides the best measure of net income </li></ul><ul><li>Necessitates accounts be brought up to date before financial statements are prepared </li></ul>
  6. 6. FISCAL YEAR <ul><li>A 12-month period of time used as an accounting period </li></ul><ul><li>Does not need to be the same as a calendar year </li></ul><ul><li>Many businesses schedule their fiscal year to end when business is slow </li></ul>
  7. 7. 2 Post adjusting entries to the general ledger.
  8. 8. ADJUSTING ENTRIES <ul><li>Let’s look at some adjusting entries for Jessie Jane’s Campus Delivery. </li></ul>
  9. 9. SUPPLIES TB During June, Jessie purchased supplies for $80. These were debited to the supplies account. SUPPLIES 80 PURCHASED IN JUNE
  10. 10. SUPPLIES During June, Jessie purchased supplies for $80. These were debited to the supplies account. SUPPLIES 80 Bal. 80 According to an inventory of supplies, there are only $20 of supplies on hand at the end of June. TB
  11. 11. SUPPLIES During June, Jessie purchased supplies for $80. These were debited to the supplies account. SUPPLIES 80 Bal. 80 But unless there is an adjusting entry made, $80 of supplies will be shown on the balance sheet. TB
  12. 12. SUPPLIES During June, Jessie purchased supplies for $80. These were debited to the supplies account. SUPPLIES 80 Bal. 80 ADJUSTING ENTRY NEEDED!!!! TB
  13. 13. SUPPLIES SUPPLIES 80 Bal. 80 TB $80 Purchased during month – 20 Supplies remaining $60 Supplies used
  14. 14. SUPPLIES SUPPLIES 80 Bal. 80 $60 is credited to Supplies to remove the amount of supplies used during June. 60 TB Adj.
  15. 15. SUPPLIES 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.
  16. 16. SUPPLIES SUPPLIES 80 Bal. 80 60 SUPPLIES EXPENSE 60 TB Adj. Adj. Now the balance sheet will show $20 of supplies! 20 Bal.
  17. 17. SUPPLIES SUPPLIES 80 Bal. 80 60 SUPPLIES EXPENSE 60 TB Adj. Adj. 20 Bal. The income statement will show $60 of supplies used during June. Bal. 60
  18. 18. PREPAID INSURANCE TB During June, Jessie paid $200 for an eight-month liability insurance policy with coverage beginning on June 1. PREPAID INSURANCE 200 8-month policy June 1 – Jan. 31
  19. 19. PREPAID INSURANCE TB During June, Jessie paid $200 for an eight-month liability insurance policy with coverage beginning on June 1. PREPAID INSURANCE 200 Now that June is over, we need to remove the cost of one month’s insurance from this account.
  20. 20. PREPAID INSURANCE PREPAID INSURANCE 200 $200 for 8 months: $200 ÷ 8 = $25 per month TB
  21. 21. PREPAID INSURANCE PREPAID INSURANCE 200 Prepaid Insurance is credited for $25 to remove June’s insurance coverage that has expired. 25 TB Adj.
  22. 22. PREPAID INSURANCE 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.
  23. 23. PREPAID INSURANCE PREPAID INSURANCE 200 25 INSURANCE EXPENSE 25 TB Adj. Adj. The balance sheet will show $175 (7 months) of prepaid insurance! Bal. 175
  24. 24. PREPAID INSURANCE 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
  25. 25. WAGES EXPENSE Jessie paid her part-time employees $650 on June 27. Since then, they have earned an additional $50, but have not yet been paid. WAGES EXPENSE 650 650 Bal. $650 does not include all of the wages earned by employees during June. TB
  26. 26. WAGES EXPENSE Jessie paid her part-time employees $650 on June 27. Since then, they have earned an additional $50, but have not yet been paid. WAGES EXPENSE 650 650 Bal. An ADJUSTING ENTRY is needed! TB
  27. 27. WAGES EXPENSE WAGES EXPENSE 650 $50 debit to Wages Expense for the additional wages earned during June. 50 TB Adj.
  28. 28. WAGES EXPENSE WAGES EXPENSE 650 Jessie Jane owes the employees for the additional wages. This liability is recorded in the wages payable account. 50 WAGES PAYABLE 50 Adj. TB Adj.
  29. 29. WAGES EXPENSE WAGES EXPENSE 650 50 WAGES PAYABLE 50 Adj. TB Adj. The income statement will show ALL wages earned by employees in June! Bal. 700
  30. 30. WAGES EXPENSE WAGES EXPENSE 650 50 WAGES PAYABLE 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
  31. 31. HISTORICAL COST PRINCIPLE <ul><li>Assets are recorded at their actual cost. </li></ul><ul><li>The cost remains on the books as long as the business owns the asset. </li></ul><ul><li>No adjustments are made for changes in the market value of the asset. </li></ul>
  32. 32. USEFUL LIFE <ul><li>The period of time that an asset is expected to help produce revenues. </li></ul><ul><li>Useful life expires as a result of wear and tear or because it no longer satisfies the needs of the business. </li></ul><ul><li>As this happens, depreciation expense should be recognized and the value of the asset should be reduced. </li></ul>
  33. 33. DEPRECIATION EXPENSE <ul><li>Depreciation is a method of matching an asset’s original cost against the revenue produced over the useful life. </li></ul><ul><li>There are many depreciation methods. (We will use the straight-line method.) </li></ul><ul><li>Depreciation expense is based on estimates of useful lives and salvage values. </li></ul>
  34. 34. SALVAGE VALUE <ul><li>The expected market value or selling price of an asset at the end of its useful life </li></ul><ul><li>Also called: </li></ul><ul><ul><li>Scrap value, or </li></ul></ul><ul><ul><li>Residual value </li></ul></ul>
  35. 35. STRAIGHT-LINE DEPRECIATION EXAMPLE 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. 36. STRAIGHT-LINE DEPRECIATION EXAMPLE FORMULA: 1st step: Calculate the depreciable cost. Original Cost Salvage Value = Depreciable Cost $3,600 $0 = $3,600 – –
  37. 37. STRAIGHT-LINE DEPRECIATION EXAMPLE 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 of years. =
  38. 38. STRAIGHT-LINE DEPRECIATION EXAMPLE 2nd step: Determine depreciation expense for this accounting period. FORMULA: Depreciable Cost Estimated Useful Life $3,600 36 months =
  39. 39. STRAIGHT-LINE DEPRECIATION EXAMPLE 2nd step: Determine depreciation expense for this accounting period. FORMULA: Depreciable Cost Estimated Useful Life $3,600 36 months = = $100 per month
  40. 40. DEPRECIATION EXPENSE Now that we know depreciation for June is $100, let’s figure out the adjusting entry.
  41. 41. DEPRECIATION DELIVERY EQUIPMENT 3,600 We do NOT adjust this account. It should always reflect the ORIGINAL COST of the asset. TB
  42. 42. ACCUMULATED DEPRECIATION DELIVERY EQUIPMENT 3,600 Depreciation is credited to this account instead of the asset account. ACCUMULATED DEPRECIATION — DELIVERY EQUIPMENT 100 TB Adj.
  43. 43. ACCUMULATED DEPRECIATION <ul><li>Is a contra-asset account </li></ul><ul><ul><li>“Contra” means opposite </li></ul></ul><ul><li>Has a credit balance (the opposite of an asset) </li></ul><ul><li>Is deducted from the related asset account on the balance sheet </li></ul>
  44. 44. BOOK VALUE <ul><li>The value carried on the books or in the accounting records </li></ul><ul><li>Book Value = Cost of Plant Assets – Accumulated Depreciation </li></ul><ul><li>Also called undepreciated cost </li></ul>
  45. 45. DEPRECIATION EXPENSE DELIVERY EQUIPMENT 3,600 ACCUMULATED DEPRECIATION — DEL. EQUIP. 100 DEPRECIATION EXPENSE — DEL. EQUIP. 100
  46. 46. 3 Prepare a work sheet.
  47. 47. THE WORK SHEET <ul><li>Pulls together all of the information needed to: </li></ul><ul><ul><li>Enter adjusting entries </li></ul></ul><ul><ul><li>Prepare financial statements </li></ul></ul><ul><li>Is not a financial statement </li></ul><ul><li>Is not a formal part of the accounting system </li></ul><ul><li>Ordinarily, only the accountant uses a work sheet </li></ul><ul><li>Commonly in a 10-column format </li></ul>
  48. 48. PREPARING THE WORK SHEET <ul><li>5 STEPS </li></ul><ul><ul><li>Prepare the Trial Balance. </li></ul></ul><ul><ul><li>Prepare the Adjustments. </li></ul></ul><ul><ul><li>Prepare the Adjusted Trial Balance. </li></ul></ul><ul><ul><li>Extend Adjusted Balances to the Income Statement and Balance Sheet columns. </li></ul></ul><ul><ul><li>Complete the Work Sheet. </li></ul></ul>
  49. 49. Jessie Jane’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 ©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. 50. Jessie Jane’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. ©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.
  51. 51. 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 Jessica Jane, Capital Delivery Fees Wages Expense Jessica Jane, 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. ©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. 52. 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 Jessica Jane, Capital Delivery Fees Wages Expense Jessica Jane, 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. ©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. 53. 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 Jessica Jane, Capital Delivery Fees Wages Expense Jessica Jane, 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. ©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. 54. 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 Jessica Jane, Capital Delivery Fees Wages Expense Jessica Jane, 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) ©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. Adjustments are identified with a letter in parentheses.
  55. 55. 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 Jessica Jane, Capital Delivery Fees Wages Expense Jessica Jane, 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. ©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.
  56. 56. 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 Jessica Jane, Capital Delivery Fees Wages Expense Jessica Jane, 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) ©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. 57. 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 Jessica Jane, Capital Delivery Fees Wages Expense Jessica Jane, 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 ©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. The Adjustments columns BALANCE!!!
  58. 58. TRIAL BAL . ACCOUNT TITLE Cash ADJUSTMENTS Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. – Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. Del. Fees Wages Exp. J. J., 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. ©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.
  59. 59. 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 J. J., Cap Del. Fees Wages Exp. J. J., 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 ©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. 60. 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 J. J., Cap Del. Fees Wages Exp J. J., 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 ©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. 61. 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 J. J., Cap Del. Fees Wages Exp J. J., 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 ©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.
  62. 62. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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. ©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.
  63. 63. 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 J. J., Cap. Del. Fees Wages Exp J. J., 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 ©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. The Adjusted Trial Balance columns balance!!!!
  64. 64. 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 J. J., Cap. Del. Fees Wages Exp J. J., 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. ©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. 65. 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 J. J., Cap Del. Fees Wages Exp J. J., 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. ©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. 66. 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 J. J., Cap. Del. Fees Wages Exp J. J., 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 ©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. 67. 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 J. J., Cap. Del. Fees Wages Exp J. J., 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 ©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.
  68. 68. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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 ©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.
  69. 69. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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 ©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.
  70. 70. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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 ©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. LIABILITIES
  71. 71. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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 ©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.
  72. 72. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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 ©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.
  73. 73. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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 ©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.
  74. 74. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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 ©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.
  75. 75. 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. J. J., Cap. Del. Fees Wages Exp J. J., 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. ©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.
  76. 76. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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 ©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.
  77. 77. 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 J. J., Cap. Del. Fees Wages Exp. J. J., 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) ©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.
  78. 78. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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) ©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.
  79. 79. 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. J. J., Cap. Del. Fees Wages Exp J. J., 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. ©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.
  80. 80. DR. CR. ACCOUNT TITLE Cash DR. CR. INCOME STMT. Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D. – Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. Del. Fees Wages Exp. J. J., 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. ©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.
  81. 81. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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 ©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.
  82. 82. 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. J. J., Cap. Del. Fees Wages Exp. J. J., 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 ©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.
  83. 83. Describe methods for finding errors on the work sheet. 4
  84. 84. FINDING ERRORS ON THE WORK SHEET If any of the columns on the work sheet do not balance, you must find the error before you continue.
  85. 85. FOUR TIPS FOR FINDING ERRORS ON THE WORK SHEET <ul><li>Check the addition of all columns. </li></ul><ul><li>Check the addition and subtraction required when extending to the Adjusted Trial Balance columns. </li></ul><ul><li>Make sure the adjusted account balances have been extended to the appropriate columns. </li></ul><ul><li>Make sure that the net income or net loss has been added to the appropriate columns. </li></ul>
  86. 86. 5 Journalize adjusting entries from the work sheet.
  87. 87. JOURNALIZING ADJUSTING ENTRIES <ul><li>The work sheet helps the accountant organize the end-of-period financial information, including adjusting entries. </li></ul><ul><li>The accounts are not adjusted until a general journal entry is made and posted to the general ledger accounts. </li></ul>
  88. 88. ADJUSTING ENTRIES DATE DESCRIPTION PR DEBIT CREDIT Adjusting Entries 1 2 3 4 5 6 7 8 9 10 11 Instead of an explanation after each adjusting entry, “ Adjusting Entries” is written before the first adjusting entry. ©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.
  89. 89. ADJUSTING ENTRIES DATE DESCRIPTION PR DEBIT CREDIT Adjusting Entries 1 2 3 4 5 6 7 8 9 10 11 Each adjusting entry is dated the last day of the accounting period. June 30 20-- ©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.
  90. 90. ADJUSTING ENTRIES DATE DESCRIPTION PR DEBIT CREDIT Adjusting Entries 1 2 3 4 5 6 7 8 9 10 11 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 ©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.
  91. 91. ADJUSTING ENTRIES DATE DESCRIPTION PR DEBIT CREDIT Adjusting Entries (cont.) 1 2 3 4 5 6 7 8 9 10 11 30 Depr. Exp. — Del. Equip. 100 00 Accum. Depr. — Del. Equip. 100 00 June 20-- ©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.
  92. 92. 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. ©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.
  93. 93. POSTING THE ADJUSTING ENTRIES Account: Account No. DATE ITEM PR DR. CR. BALANCE DR. CR. Supplies Expense 523 20-- June 30 Adjusting 60 60 ©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. 94. Explain the cash, modified cash, and accrual bases of accounting. 6
  95. 95. ACCRUAL BASIS OF ACCOUNTING <ul><li>Revenues are recorded when EARNED </li></ul><ul><li>Expenses are recorded when INCURRED </li></ul><ul><li>Recognizes receivables and payables </li></ul><ul><li>Offers the best matching of revenues and expenses </li></ul><ul><ul><li>The best method of measuring income for most businesses </li></ul></ul><ul><ul><li>Smaller service organizations often use the cash or modified cash basis </li></ul></ul>
  96. 96. CASH BASIS OF ACCOUNTING <ul><li>Revenues are recorded when cash is RECEIVED </li></ul><ul><li>Expenses are recorded when cash is PAID </li></ul><ul><li>Similar to the accrual basis if: </li></ul><ul><ul><li>There are few receivables, payables, and assets </li></ul></ul><ul><li>Can vary significantly if: </li></ul><ul><ul><li>A business has many receivables, payables, and assets </li></ul></ul>
  97. 97. MODIFIED CASH BASIS <ul><li>Combines aspects of the cash and accrual methods </li></ul><ul><li>A business uses the cash basis for recording revenues and most expenses </li></ul><ul><li>Exceptions are made when cash is paid for assets with useful lives greater than one accounting period </li></ul><ul><li>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 </li></ul>

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