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Financial Statements and Closing Procedures Section 2: Completing the Accounting Cycle Chapter 13 Section Objectives 4.Journalize and post the adjusting entries. 5.Journalize and post the closing entries. 6.Prepare a postclosing trial balance. 7.Journalize and post reversing entries. McGraw-Hill© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

13-77 Journalizing and Posting the Adjusting Entries

13-78 Objective 4 Journalize and post the adjusting entries.

13-79 Adjusting Entries All adjustments are shown on the worksheet. After the financial statements have been prepared, the adjustments are made a permanent part of the accounting records. They are recorded in the general journal as adjusting journal entries and are posted to the general ledger.

13-80 Journalizing the Adjusting Entries

13-81 Journalizing the Adjusting Entries Each adjusting entry shows how the adjustment was calculated. Supervisors and auditors need to understand, without additional explanation, why the adjustment was made.

13-82 Type of Adjustment Worksheet Reference Purpose Adjusting Entries Removes beginning inventory and adds ending inventory to the accounting records. Inventory(a – b)

13-83 GENERAL JOURNAL PAGE 25 DATE DESCRIPTION POST. DEBIT CREDIT REF. Income Summary 52, Merchandise Inventory 52, To transfer beginning inventory to Income Summary Merchandise Inventory 47, Income Summary 47, To record ending inventory (Adjustment a) (Adjustment b) 31 Adjusting Entries 2007 Dec. 31

13-84 Adjusting Entries Type of Adjustment Worksheet Reference Purpose Inventory(a – b)Removes beginning inventory and adds ending inventory to the accounting records. Matches expense to revenue for the period; the credit is to a contra asset account. Expense(c – e)

13-85 GENERAL JOURNAL PAGE 25 DATE DESCRIPTION POST. DEBIT CREDIT REF. Uncollectible Accounts Expense Allowance for Doubtful Accounts To record estimated loss from uncollectible amounts based on 0.8% of net credit sales of $100,000 Depreciation Expense – Store Equip. 2, Accum. Depreciation - Store Equip. 2, To record depreciation for 2007 as shown by schedule on file. (Adjustment c) (Adjustment d) Depreciation Expense – Office Equip Accum. Depreciation - Office Equip To record depreciation for 2007 as shown by schedule on file. (Adjustment e) 31 Adjusting Entries 2007 Dec. 31

13-86 Adjusting Entries Type of Adjustment Worksheet Reference Purpose Inventory(a – b)Removes beginning inventory and adds ending inventory to the accounting records. Expense(c – e)Matches expense to revenue for the period; the credit is to a contra asset account. Matches expense to revenue for the period; the credit is to a liability account. Accrued Expense(f – i)

13-87 GENERAL JOURNAL PAGE 25 DATE DESCRIPTION POST. DEBIT CREDIT REF. Salaries Expense - Sales 1, Salaries Payable 1, To record accrued salaries of part- time sales clerks for Dec Payroll Taxes Expense Social Security Tax Payable To record accrued payroll tax on accrued salaries for Dec (Adjustment g) Medicare Tax Payable (Adjustment f) 31 Adjusting Entries 2007 Dec. 31

13-88 GENERAL JOURNAL PAGE 25 DATE DESCRIPTION POST. DEBIT CREDIT REF. Adjusting Entries Interest Expense Interest Payable (Adjustment i) (Adjustment h) Payroll Taxes Expense Fed. Unemployment Tax Payable 9.60 To record accrued payroll tax on accrued salaries for Dec State Unemployment Tax Payable Dec. 31 To record interest on a 2-month, $2,000, 12% note payable dated Dec. 1, 2007

13-89 Adjusting Entries Type of Adjustment Worksheet Reference Purpose Inventory(a – b)Removes beginning inventory and adds ending inventory to the accounting records. Expense(c – e)Matches expense to revenue for the period; the credit is to a contra asset account. Accrued Expense(f – i)Matches expense to revenue for the period; the credit is to a liability account. Matches expense to revenue for the period; the credit is to an asset account. Prepaid Expense(j – l)

13-90 GENERAL JOURNAL PAGE 26 DATE DESCRIPTION POST. DEBIT CREDIT REF Dec. 31 Supplies Expense 4, Supplies 4, To record supplies used Insurance Expense 2, Prepaid Insurance 2, To record expired insurance on 3-year policy purchased for $7,350 on Jan. 2, 2007 (Adjustment j) (Adjustment k) (Adjustment l) Interest Expense Prepaid Interest To record transfer of 2/3 of prepaid interest of $225 for a 3-month, 10% note payable issued to bank on Nov. 1, Adjusting Entries

13-91 Adjusting Entries Type of Adjustment Worksheet Reference Purpose Inventory(a – b)Removes beginning inventory and adds ending inventory to the accounting records. Expense(c – e)Matches expense to revenue for the period; the credit is to a contra asset account. Accrued Expense(f – i)Matches expense to revenue for the period; the credit is to a liability account. Prepaid Expense(j – l)Matches expense to revenue for the period; the credit is to an asset account. Accrued Income(m – n)Recognizes income earned in the period. The debit is to an asset account (Interest Receivable) or a liability account (Sales Tax Payable).

13-92 GENERAL JOURNAL PAGE 27 DATE DESCRIPTION POST. DEBIT CREDIT REF Dec. 31 (Adjustment m) Interest Receivable Interest Income To record accrued interest earned on a 4-month, 15% note receivable dated Nov. 1, 2007 ($1,200 x 0.15 x 2/12) Sales Tax Payable Miscellaneous Income To record accrued commission earned on sales tax owed for fourth quarter of 2007: Sales Tax Payable $7,200 Commission rate x 0.03 Commission due $ 216 (Adjustment n) 31 Adjusting Entries

13-93 Posting the Adjusting Entries

13-94 Posting the Adjusting Entries After the adjustments have been recorded in the general journal, they are promptly posted to the general ledger. The word Adjusting is entered in the Description column of each general ledger account.

13-95 Thank You for using College Accounting, 11th Edition Price Haddock Brock