learning objective 1 adjustments: prepaid rent, office supplies, depreciation on equipment, and...
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Learning Objective 1Learning Objective 1
Adjustments: prepaid rent, office supplies, depreciation on equipment, and accrued salaries
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
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Steps in Accounting CycleSteps in Accounting Cycle
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Business transactions
occur
Analyze and record
transactions in journal
Post information from journal to
ledger
Prepare a Worksheet
Prepare Financial
Statements
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Preparing a WorksheetPreparing a WorksheetWhat is it?
◦ A columnar device used to aid accountants in completing the accounting cycle
◦ Internal document – not a formal financial statement
Why is it prepared?◦ Used to organize and check data for errors
before preparing financial statementsHas 5 sections
◦ Trial Balance◦ Adjustments◦ Adjusted Trial Balance◦ Income Statement◦ Balance Sheet© 2010 Prentice Hall Business
Publishing, College Accounting: A Practical Approach, 11e by Slater
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Adjusting EntriesAdjusting EntriesInternal transactionsBring accounts up-to-dateRecognize revenues and
expenses in the proper accounting period
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
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Items that Need to be Items that Need to be AdjustedAdjustedOffice SuppliesPrepaid Items (Rent, Advertising)Equipment (Depreciation,
Accumulated Depreciation)Expenses (Salaries, Rent,
Supplies)
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
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Examples of Prepaid Examples of Prepaid AdjustmentsAdjustmentsPrepaid Rent at beginning of
month = $3,000 (covers 6 months)
End of month 1adjustment of $500 = ($3,000/6 months) Rent Expense Prepaid Rent
500 3,000 Debit 500
Credit
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
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Examples of AdjustmentsExamples of AdjustmentsSupplies on hand at the beginning of month = $4,000
Supplies on hand at the end of month = $1,200
Calculate the difference between the beginning and ending balances
$4,000 - $1,200 = $2,800- Supplies used Supplies Expense Supplies
2800 4,000 2800 Debit Credit
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
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Adjusting for ItemsAdjusting for Items
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Supplies
Jan 5 Purchased supplies for $800800Jan 20 Purchased supplies for $600600
1,400Supplies available
for use during January
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Adjusting for ItemsAdjusting for Items
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
1,1001,100
Supplies available $1,400Supplies on hand 300Supplies used $1,100
Supplies
Jan 31 Supplies on hand, $300
800600
1,400
Supplies Expense
300
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1,100 1,100
________
1,100
Adjusting for Long-Term Adjusting for Long-Term AssetsAssets
Depreciation – Allocating the cost of the asset over its useful life
Straight-line depreciation
Cost – Residual ValueEstimated Years of Usefulness
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
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Examples of AdjustmentsExamples of AdjustmentsCompany bought a piece of equipment
that has a cost of $50,000, no residual value and a useful life of 10 years
Formula for calculating depreciation:(Cost – Residual Value) ÷ Est. Usefulness in Months($50,000 – 0) ÷ 120 (10 x 12) = $417
Depreciation Expense Accumulated Depreciation
417 417
Debit Credit
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
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Adjusting for Long-Term Adjusting for Long-Term AssetsAssets
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Equipment
Jan 1 Purchased equipment for $14,000. It is estimated that the equipment will be used for 5 years, at which time it will be worth $800.
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14,000
Adjusting for Long-Term Adjusting for Long-Term AssetsAssets
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Determine depreciation for the month of January.
Cost – Residual ValueEstimated Years of Usefulness
$14,000 – 800 5 years
= $2,640
For one year: $2,640 / 12 months = $220
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Adjusting for Long-Term Adjusting for Long-Term AssetsAssets
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Equipment
14,000
Accumulated Depreciation,Equipment
Depreciation Expense, Equipment
Depreciation for one month: $2,640 / 12 months = $220
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220 220
Adjusting for Long-Term Adjusting for Long-Term AssetsAssets
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Depreciation Expense,Equipment
220
Expense shown on income statement
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Adjusting for Long-Term Adjusting for Long-Term AssetsAssets
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Balance SheetJanuary 31, 200X
AssetsCashEquipment $14,000Less accumulateddepreciation 220 13,780
Historical cost of $14,000does not change
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Book Value:Unused amount to be depreciated in
future periods
Adjusting for Long-Term Adjusting for Long-Term AssetsAssets
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Accumulated Depreciation,Equipment
220
•Contra asset account•Shown on Balance Sheet•Accumulates depreciation recognized over entire life of asset
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Adjusting for Long-Term Adjusting for Long-Term AssetsAssets
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Balance SheetFebruary 28, 200X
AssetsCash $xxxx…….. xxxxEquipment $14,000Less accumulateddepreciation 440 13,560
Increases eachaccounting period
Book Valuedecreases
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Adjusting for Accrued Adjusting for Accrued ExpensesExpenses
JANUARYS M T W T F S
1 2 3 4 5 6
7 8 9 101
11
21
3
141
51
61
71
81
92
0
212
22
32
42
52
62
7
282
93
03
1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Employee salaries are $100 a day for a five day work week which runs from Monday thru Friday. Employees are paid every Friday.
Salaries Paid (Cash)
Jan 5 500Jan 12 500Jan 19 500Jan 26 500
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Adjusting for Accrued Adjusting for Accrued ExpensesExpenses
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Employees worked 3 days more in January, but have not yet been paid.
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JANUARYS M T W T F S
1 2 3 4 5 6
7 8 9 101
11
21
3
141
51
61
71
81
92
0
212
22
32
42
52
62
7
282
93
03
1
Salaries Expense
Jan 5 500Jan 12 500Jan 19 500Jan 26 500 Jan 31 300
Adjusting for Accrued Adjusting for Accrued ExpensesExpenses
Employees worked 3 days more in January, but will not be paid until February 2.
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Salaries Payable
3 days X $100 = $300
300 Jan 31
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Salaries Expense
Jan 5 500Jan 12 500Jan 19 500Jan 26 500 Jan 31 300 2,300
Worksheet – Problem 4B-3Worksheet – Problem 4B-3
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater
Worksheet
Trial Balance Adjustments Adjusted T/B Income Statement Balance SheetAccount Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 3,920 Prepaid Insurance 3,288 Moving Supplies 1,400 Moving Truck 10,658 Accum Depr, Truck 3,660 Accounts Payable 1,312 K. Hoff, Capital 17,482 K. Hoff, Withdrawals 4,240 Revenue From Moving 8,162 Wages Expense 5,712 Rent Expense 1,080 Advertising Expense 318 Totals 30,616 30,616
Kevin's Moving Co.
October 31, 200X
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