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Adjustments and the Ten-Column Work Sheet
Adjustments and the Ten-Column Work SheetMaking Accounting Relevant
Financial data must be communicated
properly before it can be used
effectively.
Making Accounting Relevant
Financial data must be communicated
properly before it can be used
effectively.
Discuss the types of communication skills that are important to success in the workplace.
Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory
Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory
What You’ll Learn How to complete the Trial Balance
section of the work sheet. Why certain general ledger accounts
are adjusted. Why Merchandise Inventory is
adjusted. How to calculate and record the
adjustment for Merchandise Inventory.
What You’ll Learn How to complete the Trial Balance
section of the work sheet. Why certain general ledger accounts
are adjusted. Why Merchandise Inventory is
adjusted. How to calculate and record the
adjustment for Merchandise Inventory.
Why It’s ImportantSome general ledger account
balances are adjusted, or updated, so that the general ledger correctly reflects the financial position of the business at the end of the period. This ensures the accuracy of the end-of-period reports and statements.
Why It’s ImportantSome general ledger account
balances are adjusted, or updated, so that the general ledger correctly reflects the financial position of the business at the end of the period. This ensures the accuracy of the end-of-period reports and statements.
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Key Terms adjustment
beginning inventory
Key Terms adjustment
beginning inventory
ending inventory
physical inventory
ending inventory
physical inventory
Completing End-of-Period WorkCompleting End-of-Period Work
to provide information about financial
position of business
worksheet is basis for preparing
financial statements and end-of-period
journal entries
to provide information about financial
position of business
worksheet is basis for preparing
financial statements and end-of-period
journal entries
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
The Ten-Column Work Sheet
Five amount sections:
The Ten-Column Work Sheet
Five amount sections:
Trial Balance Trial Balance
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Adjustments Adjustments
Adjusted Trial Balance Adjusted Trial Balance
Income statement Income statement
Balance Sheet Balance Sheet
Completing Trial Balance Section
Proves Equality of Debits and Credits in General Ledger
Completing Trial Balance Section
Proves Equality of Debits and Credits in General Ledger
enter number and name of each
account
even ones with zero balances
accounts listed in numerical order
enter number and name of each
account
even ones with zero balances
accounts listed in numerical order
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Completing the Trial Balance Section (con’t.)
Completing the Trial Balance Section (con’t.)
enter balance of each account in
appropriate column
Debit and Credit columns are:ruledtotaledproveddouble ruled
enter balance of each account in
appropriate column
Debit and Credit columns are:ruledtotaledproveddouble ruled
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Calculating AdjustmentsCalculating Adjustments
Some account balances change because of:internal operations of the business passage of time
Some account balances change because of:internal operations of the business passage of time
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Calculating AdjustmentsCalculating Adjustments
Adjustment: amount added to or subtracted
from an account balance brings balance up-to-date.
Adjustment: amount added to or subtracted
from an account balance brings balance up-to-date.
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Calculating AdjustmentsCalculating Adjustments
Transfer costs of assets consumed
from permanent asset accounts to
temporary expense accounts
assets are “expensed”
expenses are costs of doing
business
matches expenses with revenues
Transfer costs of assets consumed
from permanent asset accounts to
temporary expense accounts
assets are “expensed”
expenses are costs of doing
business
matches expenses with revenues
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Determining the Adjustments NeededDetermining the Adjustments Needed
If the balance shown for an
account is not up-to-date as of the
last day of the fiscal period, then
that account balance must be
adjusted.
If the balance shown for an
account is not up-to-date as of the
last day of the fiscal period, then
that account balance must be
adjusted.
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Determining the Adjustments NeededDetermining the Adjustments Needed
IS IT ADJUSTED?
Inventory
Supplies
Insurance
Taxes
IS IT ADJUSTED?
Inventory
Supplies
Insurance
Taxes
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Adjusting Merchandise InventoryAdjusting Merchandise Inventory
Merchandise on Hand is
constantly changing
Changes NOT recorded in
Merchandise Inventory
Merchandise on Hand is
constantly changing
Changes NOT recorded in
Merchandise Inventory
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Adjusting Merchandise InventoryAdjusting Merchandise Inventory
Buy Merchandise – Debit Purchases
Sell Merchandise – Credit Sales
Buy Merchandise – Debit Purchases
Sell Merchandise – Credit Sales
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Adjusting Merchandise InventoryAdjusting Merchandise Inventory
Beginning Inventory = $84,921
from general ledger
in Trial Balance
same as last period’s ending
Beginning Inventory = $84,921
from general ledger
in Trial Balance
same as last period’s ending
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Adjusting Merchandise InventoryAdjusting Merchandise Inventory
Compare Beginning to Physical
Physical Inventory = $81,385
Beginning Inventory =$84,921
Merch Inv. went down $3,536
Need to credit Merch Inv.
Debit Income Summary
Compare Beginning to Physical
Physical Inventory = $81,385
Beginning Inventory =$84,921
Merch Inv. went down $3,536
Need to credit Merch Inv.
Debit Income Summary
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Adjusting the Merchandise Inventory Account (con’t.)Adjusting the Merchandise Inventory Account (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
AdjustmentTo adjust the Merchandise Inventory account to reflect
the physical inventory amount ($81,385), the following transaction is recorded.
ANALYSIS Identify 1. The accounts Merchandise Inventory and Income Summary are affected. Classify 2. Merchandise Inventory is an asset account (permanent). Income Summary is a temporary capital account. + / – 3.Merchandise Inventory is decreased by $3,536. This amount is transferred to Income Summary.
Adjusting the Merchandise Inventory Account (con’t.)Adjusting the Merchandise Inventory Account (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Adjustment (con’t.)
To adjust the Merchandise Inventory account to reflect the physical inventory amount ($81,385), the following transaction is recorded.
DEBIT-CREDIT RULE 4. To transfer the decrease in Merchandise Inventory, debit Income Summary for $3,536.
5.Decreases to asset accounts are recorded as credits. Credit Merchandise Inventory for $3,536.
Adjusting the Merchandise Inventory Account (con’t.)Adjusting the Merchandise Inventory Account (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Adjustment (con’t.)
To adjust the Merchandise Inventory account to reflect the physical inventory amount ($81,385), the following transaction is recorded.
T ACCOUNTS 6. Income MerchandiseSummary Inventory
CreditDebit
+
3,305
Credit
–
3,536
Debit
+
Entering the Adjustment for Merchandise Inventory on the Work Sheet
Entering the Adjustment for Merchandise Inventory on the Work Sheet
Adjustments are entered in the
Adjustments columns of the work
sheet. The debit and credit parts of
each adjustment are given a unique
label. The label consists of a small
letter in parentheses and is placed just
above and to the left of the adjustment
amounts.
Adjustments are entered in the
Adjustments columns of the work
sheet. The debit and credit parts of
each adjustment are given a unique
label. The label consists of a small
letter in parentheses and is placed just
above and to the left of the adjustment
amounts.
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Entering the Adjustment for Merchandise Inventory on the Work Sheet (con’t.)
Entering the Adjustment for Merchandise Inventory on the Work Sheet (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Check Your UnderstandingCheck Your Understanding
What would you do if the Debit
and Credit columns of the Trial
Balance section of the work sheet
are not equal?
What would you do if the Debit
and Credit columns of the Trial
Balance section of the work sheet
are not equal?
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (con’t.)
Section 2Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax
Section 2Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax
What You’ll Learn Why the Supplies, Prepaid Insurance,
and Federal Corporate Income Tax Expense accounts are adjusted.
How to calculate the adjustments for supplies, insurance, and federal corporate income tax.
How to enter the adjustments on the work sheet.
What You’ll Learn Why the Supplies, Prepaid Insurance,
and Federal Corporate Income Tax Expense accounts are adjusted.
How to calculate the adjustments for supplies, insurance, and federal corporate income tax.
How to enter the adjustments on the work sheet.
Why It’s Important
Account balances related to
supplies, insurance, and federal
corporate income tax required
adjustment in order to prepare
accurate financial reports.
Why It’s Important
Account balances related to
supplies, insurance, and federal
corporate income tax required
adjustment in order to prepare
accurate financial reports.
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Adjusting the Supplies AccountAdjusting the Supplies Account
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Adjustment
Record the adjustment for supplies.
ANALYSIS Identify 1. The accounts affected are Supplies and Supplies Expense.
Classify 2. Supplies is an asset account (permanent). Supplies Expense is an expense account (temporary). + / – 3.Supplies is decreased by $3,710. Supplies Expense is increased by $3,710.
Adjusting the Supplies Account (con’t.)Adjusting the Supplies Account (con’t.)
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Adjustment (con’t.)
Record the adjustment for supplies.
DEBIT-CREDIT RULE 4. Increases to expense accounts are recorded as debits. Debit Supplies Expense for $3,710.
5.Decreases to asset accounts are recorded as credits. Credit Supplies for $3,710.
Adjusting the Supplies Account (con’t.)Adjusting the Supplies Account (con’t.)
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Adjustment (con’t.)
Record the adjustment for supplies.
T ACCOUNTS 6. Insurance PrepaidExpense Insurance
Debit
+
3,710
Debit
+
Credit
–
3,710
Credit
–
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
AdjustmentRecord the adjustment for the expiration of one-half
month’s insurance coverage.
ANALYSIS Identify 1. The accounts affected are Insurance Expense and Prepaid Insurance. Classify 2.
Insurance Expense is an expense account (temporary). Prepaid Insurance is an asset account (permanent). + / – 3.Insurance Expense is increased by $125. Prepaid Insurance is decreased by $125.
Adjusting the Prepaid Insurance AccountAdjusting the Prepaid Insurance Account
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Adjustment (con’t.)
DEBIT-CREDIT RULE 4. Increases to expense accounts are recorded as debits. Debit Insurance Expense for $125.
5.Decreases to asset accounts are recorded as credits. Credit Prepaid Insurance for $125.
Adjusting the Prepaid Insurance Account (con’t.)
Adjusting the Prepaid Insurance Account (con’t.)
Record the adjustment for the expiration of one-half month’s insurance coverage.
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Adjustment (con’t.)
T ACCOUNTS 6. Insurance PrepaidExpense Insurance
Debit
+
125
Debit
+
Credit
–
125
Credit
–
Adjusting the Prepaid Insurance Account (con’t.)
Adjusting the Prepaid Insurance Account (con’t.)
Record the adjustment for the expiration of one-half month’s insurance coverage.
Check Your UnderstandingCheck Your Understanding
Explain how to make an
adjustment for prepaid
insurance.
Explain how to make an
adjustment for prepaid
insurance.
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (con’t.)
Section 3Completing the Work Sheet and Journalizing and Posting the Adjusting Entries
Section 3Completing the Work Sheet and Journalizing and Posting the Adjusting EntriesWhat You’ll Learn
How to complete the Adjusted Trial Balance section.
How to extend amounts to the Income Statement and Balance sheet sections.
How to report the net income or net loss for the period.
How to journalize the adjusting entries in the general journal.
How to post the adjusting entries to the general ledger.
What You’ll Learn How to complete the Adjusted Trial
Balance section. How to extend amounts to the Income
Statement and Balance sheet sections. How to report the net income or net loss
for the period. How to journalize the adjusting entries in
the general journal. How to post the adjusting entries to the
general ledger.
Why It’s Important
The work sheet is the source
of information for journalizing the
adjusting entries and preparing
the financial statements.
Why It’s Important
The work sheet is the source
of information for journalizing the
adjusting entries and preparing
the financial statements.
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Completing the Adjusted Trial Balance SectionCompleting the Adjusted Trial Balance Section
Once the adjustments are entered
in the Adjustments section of the work
sheet, it is important to prove that the
accounts are still in balance. This is
done by completing an adjusted trial
balance.
Once the adjustments are entered
in the Adjustments section of the work
sheet, it is important to prove that the
accounts are still in balance. This is
done by completing an adjusted trial
balance.
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Extending Amounts to the Balance Sheet and Income Statement Sections
Extending Amounts to the Balance Sheet and Income Statement Sections
Beginning with line 1, each
account balance in the Adjusted Trial
Balance section is extended to the
appropriate column of either the
Balance Sheet section or the Income
Statement section.
Beginning with line 1, each
account balance in the Adjusted Trial
Balance section is extended to the
appropriate column of either the
Balance Sheet section or the Income
Statement section.
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Completing the Work SheetCompleting the Work Sheet
After all amounts are extended to the
Balance Sheet and Income Statement
sections, a single rule is drawn across
the columns in these sections.
All four columns are then totaled.
The difference between the two
column totals in each section is the
amount of net income (or net loss) for
the period.
After all amounts are extended to the
Balance Sheet and Income Statement
sections, a single rule is drawn across
the columns in these sections.
All four columns are then totaled.
The difference between the two
column totals in each section is the
amount of net income (or net loss) for
the period.
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Completing the Work Sheet (con’t.)Completing the Work Sheet (con’t.)
After the net income (or net loss) is
recorded, the columns in the
Balance Sheet and Income
Statement sections are ruled and
totaled.
A double rule is drawn across all
four columns.
After the net income (or net loss) is
recorded, the columns in the
Balance Sheet and Income
Statement sections are ruled and
totaled.
A double rule is drawn across all
four columns.
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Journalizing AdjustmentsJournalizing Adjustments
The journal entries that update the
general ledger accounts at the end of
a period are called adjusting entries.
The source of information for
journalizing the adjusting entries is
the Adjustments section of the work
sheet.
The journal entries that update the
general ledger accounts at the end of
a period are called adjusting entries.
The source of information for
journalizing the adjusting entries is
the Adjustments section of the work
sheet.
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Journalizing Adjustments (con’t.)Journalizing Adjustments (con’t.)
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Posting Adjusting Entries to the General LedgerPosting Adjusting Entries to the General Ledger
After the adjusting entries are
recorded in the general journal, they
are posted to the general ledger
accounts.
Once the adjusting entries are
posted, the general ledger accounts
are up-to-date.
After the adjusting entries are
recorded in the general journal, they
are posted to the general ledger
accounts.
Once the adjusting entries are
posted, the general ledger accounts
are up-to-date.
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Check Your UnderstandingCheck Your Understanding
Which types of general ledger
accounts appear in the Balance
Sheet section of the work sheet?
Which types of general ledger
accounts appear in the Balance
Sheet section of the work sheet?
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (con’t.)