Unit 12 – Worksheet, Adjustments, Financial Statements

Eight-Column Worksheet -how adjustments are first prepared on the worksheet (same way as 6 – column) …just need to add 2 columns for adjustments. In the following order: Trial Balance Adjustments Income Statement Balance sheet

Eight-Column Work Sheet SEE FIGURE 6.5 (Page 221)

Adjustment #1 (Supplies) A count made of all supplies on hand shows $900 worth left on January 31. See Figure 6.6 – Page 223 Total supplies purchased Less: Supplies left Supplies used $1000 900 $100 Supplies Jan.31 1000 Balance 900 Jan. 31 100 Supplies Expense Jan. 31 100

Adjustment #2 (Prepaid Insurance) In January, a $720, one year insurance policy was purchased. One month of the policy is now expired. See Figure 6.7 – Page 225 Insurance for 1 year Per month (1/12 * 720) $720 $60 Prepaid Insurance Jan.31 720 Balance 660 Jan. 31 60 Insurance Expense Jan. 31 60

Adjustment #3 (Prepaid rent) On January 1st, rent of $5100 was prepaid for January, February, & March. See Figure 6.8 – Page 226 Rent for 3 months Per month (1/3 * 5100) $5100 $1700 Prepaid Rent Jan.31 5 100 Balance 3 400 Jan. 31 1 700 Rent Expense Jan. 31 1 700

Adjustment #4 (Depreciation-Equipment) 20% per year (Declining Balance method – tax purposes) See Figure 6.9 – Page 227 This year’s depreciation Per month (1/12 * 1920) $1920 $160 Accumulated Depreciation- Equipment Jan. 31 2400 31 160 Balance 2560 Depreciation Expense- Equipment Jan. 31 160 Equipment Jan. 31 12 000

Completing the Worksheet See Page 227. Add or subtract the adjustment to create your new total for the account. (balance sheet or income statement) Net income/loss calculated the same way as before. (Debits > Credits = net loss and vice versa) - Double underline totals!

8-Column Worksheet (Steps) Heading Trial Balance Data for adjustments (collect) Adjustments column (total, balance, rule) Transfer to income statement or balance sheet Determine Net income/loss Balance & rule the work sheet.

10 – Column Worksheet Two extra columns added (Adjusted Trial Balance) Purpose: to ensure ledger accounts still in balance See Figure 6.10 (Page 230)

10-Column Worksheet (Steps) Heading Trial Balance Data for adjustments (collect) Adjustments column (total, balance, rule) Transfer to adjusted trial balance. (recalculate balances where necessary) Transfer to income statement or balance sheet Determine Net income/loss Balance & rule the work sheet.

Preparing the Financial Statements Financial statements are prepared from the work sheet. (Page 231-232) New Expenses (from adjustments) are included in the income statement. Accumulated Depreciation is shown as a subtraction from Equipment in the fixed asset section of the balance sheet.