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College Accounting
Heintz & Parry20th Edition
Chapter 5
Adjusting Entries
and the Work Sheet
1
Prepare end-of-period
adjustments.
• 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.
• 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
• 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
2
Post adjusting entries to
the general ledger.
Let’s look at some adjusting entries for Jessie Jane’s Campus Delivery.
TB
During June, Jessie purchased supplies for $80. These were debited to the
supplies account.
SUPPLIES
80PURCHASED
IN JUNE
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 $20of supplies on hand at the end of June.
TB
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 thebalance sheet.
TB
During June, Jessie purchased supplies for $80. These were debited to the
supplies account.
SUPPLIES
80
Bal. 80ADJUSTING ENTRY
NEEDED!!!!
TB
SUPPLIES
80
Bal. 80 $80 Purchased during month
– 20 Supplies remaining
$60 Supplies used
TB
SUPPLIES
80
Bal. 80
$60 is credited to Supplies to remove
the amount of supplies used during June.
60
TB
Adj.
SUPPLIES
80
Bal. 80
$60 is debited to Supplies Expenseto recognize the amount ofsupplies used during June.
60
SUPPLIES EXPENSE
60TB
Adj.
Adj.
SUPPLIES
80
Bal. 80
60
SUPPLIES EXPENSE
60TB
Adj.
Adj.
Now the balance sheet will show $20
of supplies!
20Bal.
SUPPLIES
80
Bal. 80
60
SUPPLIES EXPENSE
60TB
Adj.
Adj.
20Bal.
The income statementwill show $60 of supplies
used during June.
Bal. 60
TB
During June, Jessie paid $200 for an eight-month liability insurance policy with coverage beginning on June 1.
PREPAID INSURANCE
2008-month policyJune 1–Jan. 31
19
TB
During June, Jessie paid $200 for an eight-month liability insurance policy with coverage beginning on June 1.
PREPAID INSURANCE
200Now that June is over, weneed to remove the costof one month’s insurance
from this account.
PREPAID INSURANCE
200
$200 for 8 months:$200 ÷ 8 = $25 per month
TB
PREPAID INSURANCE
200
Prepaid Insurance iscredited for $25 to removeJune’s insurance coverage
that has expired.
25
TB
Adj.
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.
PREPAID
INSURANCE
200
25
INSURANCE
EXPENSE
25TB
Adj.
Adj.
The balance sheet will show$175 (7 months) of prepaid insurance!
Bal. 175
24
PREPAID
INSURANCE
200
25
INSURANCE
EXPENSE
25TB
Adj.
Adj.
Bal. 175
The income statement will show $25 (1 month) of insurance consumed!
Bal. 25
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
650Bal.
$650 does not include all of thewages earned by employees
during June.
TB
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
650Bal.
An ADJUSTING ENTRY is needed!
TB
WAGES EXPENSE
650
$50 debit to Wages Expense for the additional wages
earned during June.
50
TB
Adj.
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.
WAGES EXPENSE
650
50
WAGES PAYABLE
50
Adj.
TB Adj.
The income statement will show ALL wages earnedby employees in June!
Bal. 700
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
• 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.
• 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.
• 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.
• The expected market value or selling price of an
asset at the end of its useful life
• Also called:
– Scrap value, or
– Residual value
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 scootersto be of no value when the three yearsare over, the whole $3,600 cost needsto be spread over the next three years.
FORMULA:
1st step: Calculate the depreciable cost.
Original
Cost
Salvage
Value =Depreciable
Cost
$3,600 $0 = $3,600
–
–
37
2nd step: Determine depreciation expense for this accounting period.
FORMULA:
Depreciable
Cost
Estimated
Useful Life
$3,600
Since we are trying to computedepreciation for one month,we will use months instead
of years.
=
2nd step: Determine depreciation expense for this accounting period.
FORMULA:
Depreciable
Cost
Estimated
Useful Life
$3,600
36 months=
2nd step: Determine depreciation expense for this accounting period.
FORMULA:
Depreciable
Cost
Estimated
Useful Life
$3,600
36 months= =
$100 per
month
Now that we know depreciation for June is $100, let’s figure out the
adjusting entry.
DELIVERY
EQUIPMENT
3,600
We do NOT adjust this account.It should always reflect the
ORIGINAL COST of the asset.
TB
DELIVERY
EQUIPMENT
3,600
Depreciation is credited to this account instead of the asset account.
ACCUMULATED
DEPRECIATION—
DELIVERY EQUIPMENT
100TB Adj.
• 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
• The value carried on the books or in the
accounting records
• Book Value = Cost of Plant Assets –
Accumulated Depreciation
• Also called undepreciated cost
DELIVERY
EQUIPMENT
3,600
ACCUMULATED
DEPRECIATION—
DEL. EQUIP.
100
DEPRECIATION
EXPENSE—
DEL. EQUIP.
100
3
Prepare a work sheet.
• Pulls together all of the information needed to:
– Enter adjusting entries
– Prepare financial statements
• Is not a financial statement
• Is not a formal part of the accounting system
• Ordinarily, only the accountant uses a work sheet
• Commonly in a 10-column format
5 STEPS
1. Prepare the Trial Balance.
2. Prepare the Adjustments.
3. Prepare the Adjusted Trial Balance.
4. Extend Adjusted Balances to the
Income Statement and Balance
Sheet columns.
5. Complete the Work Sheet.
Jessie Jane’s Campus Delivery
Work Sheet
For Month Ended June 30, 20--
TRIAL BALANCE
DEBIT CREDITACCOUNT TITLE
Heading includes:Name of the company
Name of the working paperDate 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.
Jessie Jane’s Campus Delivery
Work Sheet
For Month Ended June 30, 20--
TRIAL BALANCE
DEBIT CREDITACCOUNT 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.
TRIAL BALANCEDEBITCREDIT
ACCOUNT TITLE
CashDEBIT CREDIT
ADJUSTMENTS
Accounts ReceivableSuppliesPrepaid InsuranceDelivery EquipmentAccum. Depr.—Del. Equip.Accounts PayableWages PayableJessica Jane, Capital
Delivery FeesWages Expense
Jessica Jane, Drawing
Rent ExpenseSupplies ExpenseTelephone ExpenseInsurance ExpenseDepr. Exp.—Del. Equip.
37065080
2003,600
1,800
2000150
2150650200
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.
TRIAL BALANCEDEBITCREDIT
ACCOUNT TITLE
CashDEBIT CREDIT
ADJUSTMENTS
Accounts ReceivableSuppliesPrepaid InsuranceDelivery EquipmentAccum. Depr.—Del. Equip.Accounts PayableWages PayableJessica Jane, Capital
Delivery FeesWages Expense
Jessica Jane, Drawing
Rent ExpenseSupplies ExpenseTelephone ExpenseInsurance ExpenseDepr. Exp.—Del. Equip.
370650
80200
3,600
1,800
2,000150
2,150650200
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.
TRIAL BALANCEDEBITCREDIT
ACCOUNT TITLE
CashDEBIT CREDIT
ADJUSTMENTS
Accounts ReceivableSuppliesPrepaid InsuranceDelivery EquipmentAccum. Depr.—Del. Equip.Accounts PayableWages PayableJessica Jane, Capital
Delivery FeesWages Expense
Jessica Jane, Drawing
Rent ExpenseSupplies ExpenseTelephone ExpenseInsurance ExpenseDepr. Exp.—Del. Equip.
37065080
2003,600
1,800
2,000150
2,150650200
50
5,950 5,950
Let’s record the supplies adjustmentwe 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.
TRIAL BALANCEDEBITCREDIT
ACCOUNT TITLE
CashDEBIT CREDIT
ADJUSTMENTS
Accounts ReceivableSuppliesPrepaid InsuranceDelivery EquipmentAccum. Depr.—Del. Equip.Accounts PayableWages PayableJessica Jane, Capital
Delivery FeesWages Expense
Jessica Jane, Drawing
Rent ExpenseSupplies ExpenseTelephone ExpenseInsurance ExpenseDepr. Exp.—Del. Equip.
37065080
2003,600
1,800
2,000150
2,150650200
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.
TRIAL BALANCEDEBITCREDIT
ACCOUNT TITLE
CashDEBIT CREDIT
ADJUSTMENTS
Accounts ReceivableSuppliesPrepaid InsuranceDelivery EquipmentAccum. Depr.—Del. Equip.Accounts PayableWages PayableJessica Jane, Capital
Delivery FeesWages Expense
Jessica Jane, Drawing
Rent ExpenseSupplies ExpenseTelephone ExpenseInsurance ExpenseDepr. Exp.—Del. Equip.
37065080
2003,600
1,800
2,000150
2,150650200
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.
TRIAL BALANCEDEBITCREDIT
ACCOUNT TITLE
CashDEBIT CREDIT
ADJUSTMENTS
Accounts ReceivableSuppliesPrepaid InsuranceDelivery EquipmentAccum. Depr.—Del. Equip.Accounts PayableWages PayableJessica Jane, Capital
Delivery FeesWages Expense
Jessica Jane, Drawing
Rent ExpenseSupplies ExpenseTelephone ExpenseInsurance ExpenseDepr. Exp.—Del. Equip.
37065080
2003,600
1,800
2,000150
2,150650200
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.
TRIAL BALANCEDEBITCREDIT
ACCOUNT TITLE
CashDEBIT CREDIT
ADJUSTMENTS
Accounts ReceivableSuppliesPrepaid InsuranceDelivery EquipmentAccum. Depr.—Del. Equip.Accounts PayableWages PayableJessica Jane, Capital
Delivery FeesWages Expense
Jessica Jane, Drawing
Rent ExpenseSupplies ExpenseTelephone ExpenseInsurance ExpenseDepr. Exp.—Del. Equip.
37065080
2003,600
1,800
2,000150
2,150650200
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!!!
TRIAL BAL.ACCOUNT
TITLE
Cash
ADJUSTMENTS
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
370650
2003600
1800
2000150
2150650200
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.
TRIAL BAL.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
ADJUSTMENTS
Accts. Rec.SuppliesPpd. Ins.Del. EqA. D..-Del Eq.Accts PayWages PayJ. J., Cap
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
370650
2003600
1800
2000150
2150650200
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.
TRIAL BAL.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
ADJUSTMENTS
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del Eq.Accts. Pay.Wages PayJ. J., Cap
Del. FeesWages Exp
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
370650
2003600
1800
2000150
2150650200
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
370650
©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.
TRIAL BAL.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
ADJUSTMENTS
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts PayWages PayJ. J., Cap
Del. FeesWages Exp
J. J., Drawing
Rent ExpSup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
370650
2003600
1800
2000150
2150650200
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
37065020
©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.
TRIAL BAL.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
ADJUSTMENTS
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. ExpTel. ExpIns. Exp.D. E.–Del. Eq.
370650
2003600
1800
2000150
2150650200
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.
37065020
This process continuesuntil ALL accountsare 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.
TRIAL BAL.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
ADJUSTMENTS
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages PayJ. J., Cap.
Del. FeesWages Exp
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
370650
2003600
1800
2000150
2150650200
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.
37065020
1753600
1001800
502000
150
2150700200605025
1006100 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 AdjustedTrial Balance columns
balance!!!!
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages PayJ. J., Cap.
Del. FeesWages Exp
J. J., Drawing
Rent ExpSup. Exp.Tel. Exp.Ins. ExpD. E.–Del. Eq.
CR. DR.BALANCE SHEET
370650
20175
3600100
180050
2000150
2150700200605025
1006100 6100
Step #4: Extend adjusted balancesto 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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages PayJ. J., Cap
Del. FeesWages Exp
J. J., Drawing
Rent ExpSup. ExpTel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
37065020
1753600
1001800
502000
1502150
700200605025
1006100 6100
Each account in theAdjusted 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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages PayJ. J., Cap.
Del. FeesWages Exp
J. J., Drawing
Rent ExpSup. ExpTel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
37065020
1753600
1001800
502000
1502150
700200605025
1006100 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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages PayJ. J., Cap.
Del. FeesWages Exp
J. J., Drawing
Rent ExpSup. ExpTel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
37065020
1753600
1001800
502000
1502150
700200605025
1006100 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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
370650
20175
3600100
180050
2000150
21507002006050
1006100 6100
37065020
1753600
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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
370650
20175
3600100
180050
2000150
21507002006050
1006100 6100
37065020
1753600
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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
37065020
1753600
1001800
502000
1502150
7002006050
1006100 6100
37065020
1753600
1001800
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
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
37065020
1753600
1001800
502000
1502150
7002006050
1006100 6100
37065020
1753600
1001800
502000
25
CAPITAL
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ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. ExpIns. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
37065020
1753600
1001800
502000
1502150
7002006050
1006100 6100
37065020
1753600
1001800
502000
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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
37065020
1753600
1001800
502000
1502150
7002006050
1006100 6100
37065020
1753600
1001800
502000
1502150
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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
37065020
1753600
1001800
502000
1502150
7002006050
25100
6100 6100
37065020
1753600
1001800
502000
1502150
7002006050
25100
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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del Eq.Accts Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
370650
20175
3600100
180050
2000150
21507002006050
25100
6100 6100
37065020
1753600
1001800
502000
1502150
7002006050
25100
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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
370650
20175
3600100
180050
2000150
21507002006050
25100
6100 6100
37065020
1753600
1001800
502000
1502150
7002006050
25100
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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages PayJ. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
37065020
1753600
1001800
502000
1502150
7002006050
25100
6100 6100
37065020
1753600
1001800
502000
1502150
7002006050
25100
1135 2150 4965 3950
Step #5: Complete the work sheet.b. Calculate the difference between
the Income Statement Debit andCredit 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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
37065020
1753600
1001800
502000
1502150
7002006050
25100
6100 6100
37065020
1753600
1001800
502000
1502150
7002006050
25100
1135 2150 4965 3950
Step #5: Complete the work sheet.c. Calculate the difference between
the Balance Sheet Debit andCredit 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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. EqA. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
370650
20175
3600100
180050
2000150
21507002006050
25100
6100 6100
37065020
1753600
1001800
502000
1502150
7002006050
25100
1135 2150 4965 3950
The differences are the same!!!!The work sheet balances!!!
Since the Income Statement Credit column (REVENUES) exceedsthe 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.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
370650
20175
3600100
180050
2000150
21507002006050
25100
6100 6100
37065020
1753600
1001800
502000
1502150
7002006050
25100
1135 2150 4965 3950
Step #5: Complete the work sheet.d. Add the net income to theIncome 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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent ExpSup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
37065020
1753600
1001800
502000
1502150
7002006050
25100
6100 6100
37065020
1753600
1001800
502000
1502150
7002006050
25100
1135 2150 4965 3950
Step #5: Complete the work sheet.e. Total and double rule (underline) the columns.
1015 1015Net 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.
ADJ. T. B.
DR.CR.
ACCOUNT
TITLE
CashDR. CR.
INCOME STMT.
Accts. Rec.SuppliesPpd. Ins.Del. Eq.A. D.–Del. Eq.Accts. Pay.Wages Pay.J. J., Cap.
Del. FeesWages Exp.
J. J., Drawing
Rent Exp.Sup. Exp.Tel. Exp.Ins. Exp.D. E.–Del. Eq.
CR. DR.BALANCE SHEET
370650
20175
3600100
180050
2000150
21507002006050
25100
6100 6100
37065020
1753600
1001800
502000
1502150
7002006050
25100
1135 2150 4965 39501015 10152150 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.
Describe methods
for finding errors on
the work sheet.
4
If any of the columns on the work sheet do not balance, you must find the error before you
continue.
• 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.
5
• 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.
DATE DESCRIPTION PR DEBIT CREDIT
Adjusting Entries1
2
3
4
5
6
7
8
9
10
11
Instead of an explanation aftereach 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.
DATE DESCRIPTION PR DEBIT CREDIT
Adjusting Entries1
2
3
4
5
6
7
8
9
10
11
Each adjusting entry is dated the last day of the accounting
period.
June 3020--
©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.
DATE DESCRIPTION PR DEBIT CREDIT
Adjusting Entries1
2
3
4
5
6
7
8
9
10
11
June 3020--
Supplies Expense 60 00
Supplies 60 00
30 Insurance Expense 25 00
25 00Prepaid 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.
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
June20--
©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.
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 writtenin 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.
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.
Explain the cash,
modified cash,
and accrual bases
of accounting.
6
• 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
• 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
• 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