Adjusting Entries and The Worksheet Faculty by alicejenny

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									 Adjusting Entries and
    The Worksheet


Chapter 4
Expected Learning Outcomes
 List the classifications of the accounts
  that occupy each column of a ten-
  column worksheet
 Complete a worksheet for a service
  enterprise
 Journalize and post adjusting entries
 Prepare statements from worksheet
How the Course Is Organized
 Chapter 1 – Introduction
 Chapter 2 – Analyzing business
  transactions
 Chapter 3 – Journalizing and posting
 Chapter 4 – Adjustment data and
  worksheet
 Chapter 5 – Closing entries
Fiscal Period
 Period of time covering a complete
  accounting cycle through closing entries
 A day, week, month, whenever you want
 Monthly is normal for comparison purposes
 Fiscal year
   Complete cycle for 12 months
   Need not coincide with calendar year
The 10-Column Worksheet
 Working paper
   Simply a tool used for accounting
   To record necessary updates for financial
    statements
 Central place for bringing together
  information for adjustments
       Ten Column Worksheet
        (Overlay pages - Page 120)
 10 columns for recording dollar amounts
 2 columns for each heading (debit/credit)
     Trial balance
     Adjustments
     Adjusted trial balance
     Income Statement
     Balance Sheet
Trial Balance Columns
 You have done this in the homework
 A listing of each account in the order
  of
     Assets
     Liabilities
     Owner’s equity
     Revenue
     Expenses
Trial Balance Columns
 Noting the balance in each account
 Foot the debit and credit columns and
  make sure they balance
 If you are not in balance, fix it here
  before continuing
Adjustments
 These update the ledger accounts
 Internal transactions where no money
  has changed hands….cash is NOT
  involved
 Cash account is NEVER used in
  adjustment columns
Adjustment Example
Paid $360 for Insurance for 1 Year on
February 1

Analyze the transaction
   Debit Prepaid Insurance $360
   Credit Cash $360
 March 1st – How have the accounts
  changed?
   $360/12 = $30 of Prepaid Insurance
    used
   Insurance Expense increased $30
Depreciation
 Depreciation Expense is recorded
  every period that an asset was in use
 This “expenses” the cost of the asset
  over its useful life
 At the end of its use, an asset has a
  “trade-in value” or salvage value.
Depreciation
 The amount in the asset account is the cost
  of the asset until disposed
 The amount in the asset account minus the
  amount in the Accumulated Depreciation
  account is called “book value”
 Depreciation is not deducted directly from
  the asset account – a new account called
  “Accumulated Depreciation” is created for
  each asset. This way, you can see on the
  balance sheet how much of the asset has
  expired.
Depreciation of Equipment
(page 115)
 Estimated useful life of equipment is 7
  years
 Estimated value of equipment at end of 7
  years is $6,880 (trade-in or salvage value)
 Cost of equipment ($49,720) minus trade-
  in value ($6,880) divided by the number of
  years of use (7) is the annual depreciation
 This annual depreciation is divided by 12 to
  get the Depreciation Expense amount for
  each month

                (continued next slide)
Depreciation Example
Bought Equipment for $49,720
 $49,720 - $6,880 (trade-in) = $42,840
 $42,840 / 7 years = $6,120 per year
 Divide the depreciation for one year by 12
  to get the depreciation for one month
  ($6,120 per year / 12 = $510 per month)
 Each month the depreciation expense is
  recorded in Depreciation Expense as a debit
  of $510 (Income Statement)
 Each month Accumulated Depreciation is
  credited $510 (Balance Sheet)
 You are matching expenses against
  revenue for a certain period
Depreciation (review)
 Record assets at the purchase price
 Expense the asset over its useful life
 Expense claimed each period during
  the useful life is called Depreciation
  Expense
 Each asset has its own Accumulated
  Depreciation account (contra account)
 See p. 116 for how it will look on the
  Balance Sheet.
       Adjustments --
  Wages Expense (page 116)
 End of the reporting period
   Owe wages to employees
   Haven’t paid them yet but the books are
    “being closed” so they must be
    accounted for
   Figure out how much they have earned
    up to the date you are closing the books
   Debit Wages Expense account
   Credit Wages Payable account
Wages Expense Example
End of Month on a Wednesday
 You pay wages of $300 every week
  on Friday to your employees
 Equals $60 per day (5-day week)
 Your employees worked 3 days in this
  calendar month (Mon., Tues., Wed.) -
  $180 of wages earned ($60 x 3)
 Wages Expense debited $180
 Wages Payable credited $180
What Happens Friday When You
Pay Wages

•Debit – Wages Payable         •Credit - Cash
    Wages Payable                      Cash


   180                                        180

    If you debit Wages Expense here then you will be
                    recording it twice
   The Worksheet Adjustment
           Columns
 Page 120
 Make sure that debits equal credits here
 Label each adjusting entry with letter
  labels, for example, (a) for each debit and
  credit adjustment to insurance, (b) for
  each adjustment to depreciation, and (c)
  for each adjustment to wages
 Write notes explaining each adjustment,
  labeled by letter, at the bottom of the
  Account Name column on the worksheet.
Adjusted Trial Balance
 You have added the columns (up
  and down) up until now.
 Now you are going to add/subtract
  the rows (across) from the trial
  balance and adjustments
 This gives you the current status of
  the accounts (Adjusted Trial
  Balance)
 Page 123
Income Statement Column
 Copy the figures from the adjusted
  trial balance for all accounts that go
  into the Income Statement
 Revenue and expenses only
 See overlay after page 120
 Foot the columns – and debits will
  NOT equal credits – why not?
 You haven’t considered profit
Balance Sheet Column
 Copy the balances from all other than
  Income Statement accounts from the
  adjusted trial balance column to
  these accounts
 Foot the columns and they will not
  balance….why not?
Balance Sheet Column
 We haven’t considered profit
 The difference here will be the exact
  same difference from the Income
  Statement columns
Steps in Completing the
Worksheet
1. Complete trial balance columns, foot
   and double underline if in balance
   (rule)
2. Complete the adjustments columns,
   foot and rule
3. Complete adjusted trial balance, foot
   and rule
Steps in Completing the
Worksheet
4. Record balances in the Income
   Statement and Balance Sheet
   columns, foot
5. Record net income or net loss in
   Income Statement columns by
   subtracting the smaller side from the
   larger side and adding the difference
   to the smaller side, foot and rule
Steps in Completing the
Worksheet
6. Record net income or net loss in
   Balance Sheet column by subtracting
   the smaller side from the larger side
   and adding the difference to the
   smaller side, foot and rule
7. The numbers in step 5 and 6 should
   be the same
      Completing Financial
         Statements
 The worksheet helps us do this
 The Income Statement is taken
  directly from the Income
  Statement columns of the
  worksheet
       Completing Financial
          Statements
 When completing the Statement of
  Owner’s Equity – you need to look at
  the ledger account…NOT the
  worksheet for the beginning total
 The Balance Sheet figures come
  directly from the Balance Sheet
  columns EXCEPT Capital, which is
  taken the Statement of Owner’s
  Equity
      After Completing the
           Statements
 Journalize and post adjustments
 You do this by looking at the
  adjustment columns on the
  worksheet and making the
  journal entries. Then post the
  journal entries to your ledger
  accounts to update your books.
Depreciation Accounts
 Contra Assets
 Are on the Balance Sheet following
  the asset
 See page 125
Learning Outcomes Review
 List the classifications of the accounts
  that occupy each column of a ten-
  column worksheet
 Complete a worksheet for a service
  enterprise
 Journalize and post adjusting entries
 Prepare statements from worksheet
        Monday, March 5
      In-class demonstration problems

p. 137 – Exercise 4-8 – Journalize
adjusting entries
p. 133 – Exercise 4-2 – Classify
accounts and indicate normal
balances and statement columns
p. 135 – Exercise 4-5 – Prepare
adjustments and adjusted trial
balance
        Wednesday, March 7
        In-class demonstration problem

  pp. 141-142 – Problem 4-1B

 Record amounts in the Trial Balance
  columns of the work sheet
 Complete the work sheet by making
  adjustments
       Homework for Chapter 4
 p. 139 – Problem 4-2A

   Prepare Income Statement, Statement of Owner’s
   Equity, Balance Sheet, and adjusting entries

 pp. 139-140 – Problem 4-3A

      Complete the work sheet by making adjustments
      Journalize the adjusting entries


        Not due until March 21, but keep current!

								
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