ADJUSTMENTS AND THE TEN-COLUMN WORKSHEET Chapter 18

Completing End of Period Work  Stockholders’ Equity is to Corporation as Owner’s Equity is to Sole Proprietorship  Ledger balances are not enough to indicate performance  We need to know Net Income and Value of Stockholders’ Equity

The Ten-Column Worksheet  Semester 1 Worksheet had 6 columns  See page 205 vs  What is new?

Trial Balance Section  Same as before  List all the accounts and their balances  Including accounts with zero balance

Calculating Adjustments  Not all changes in accounts result from daily transactions  Ex: Supplies usage (I don’t credit supplies every time I use the stapler)  Ex: Prepaid insurance  These accounts are brought up to date at the end of the period We make adjustments to those balances No source Documents  Adjustment – An amount added or subtracted from a balance to bring that balance up to date

Calculating Adjustments  Adjustments are made to transfer the costs of assets (permanent) to the appropriate expense (temporary) accounts  Accountants say these assets are “expensed”  Matching principle: Expenses are matched with revenue in the period they occurred  What accounts are adjusted?  Any account whose balance is not up to date  Merchandise Inventory, Supplies, Insurance, Taxes

Adjusting Merchandise Inventory  Beginning Inventory – Merchandise on hand at the beginning of a period  Ending Inventory – Merchandise on hand at the end of a period  Physical Inventory – An actual count of all merchandise on hand  ADJUST the Merchandise Inventory account so it matches physical inventory.

Adjusting Merchandise Inventory  Merchandise Inventory is an Asset  Increased on Debit Side, Decreased on Credit Side  If Merchandise Inventory has increased Merchandise Inventory (Debit) Income Summary (Credit)  If Merchandise Inventory has decreased Income Summary (Debit) Merchandise Inventory (Credit)

Adjusting Merchandise Inventory  Problem 18-1

Adjusting Supplies, Prepaid Insurance and Federal Corporate Income Tax  Supplies Supplies Expense  Prepaid Expense – An expense paid in advance  Ex: Prepaid Insurance  Prepaid Insurance Insurance Expense  Fed. Corp. Income Tax Pay FCIT Expense

Adjusting Federal Corporate Income Tax  On Your Mark is a corporation  Pays Income Taxes Can pay quarterly (must estimate) Quarterly estimates do not always match with end of year  Problem 18-2

Extending and Completing the Worksheet  Adjusted Trial Balance  All but 8 accounts will be identical to the first Trial Bal.  Balance Sheet and Income Statement  Permanent and Temporary  Complete the worksheet  Just like old times  Determine Net Income Accounting Rules!

Journalizing and Posting Adjusting Entries  Adjusting Entries – The journal entries that update the general ledger accounts at the end of a period  Write Adjusting Entries in General Journal  Enter the four Adjusting Entry transactions  Then Post  The new ledger balances should match the Adjusted Trial Balances  18-3

Workbook  1,2,3,5,7,8,9  7 and 8 in Excel