LESSON 6-2 Planning Adjusting Entries on a Work Sheet

Objectives Define Accounting terms related to a work sheet for a services business organization organized as a proprietorship. Identify accounting concepts and practices related to a work sheet for a service business organized as a proprietorship. Plan Adjustments for supplies and prepaid insurance.

Question for YOU! How have we accounted for supplies up to this point? Answer: We have increased the asset account, Supplies, when we purchase supplies. We have NOT recorded the use of supplies. Today we will stress that if this continues, the balance in the supplies account will get larger and larger, even though supplies are being used each period.

New VOCAB TERM ADJUSTMENTS: changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period. (p. 157) Today’s lesson will discuss how to analyze adjustments for supplies and prepaid insurance. Don’t look too excited!

Lesson 6.2 The concept Matching Expenses with Revenue means that amounts that helped earn revenue for a period must be reported as expenses in the same period. Again, Today we are going to look how adjustments are made for supplies and insurance. These adjustments will be planned on the work sheet.

Example (Supplies) A Company starts the accounting period with two boxes of envelopes Three additional boxes are purchased during the period. If the company uses four boxes of envelopes, the matching concept requires that the cost of the four boxes to be included with expenses for the period. The cost of the one remaining box must be listed as an asset, Supplies.

Good Habits You should establish the habit of asking the four questions to analyze each adjustment. 1. What is the balance of Supplies? 2. What should the balance be for this account? 3. What must be done to connect the account balance? 4. What adjustment is made?

Good Habits The amount of the adjustment is the amount of supplies used. This amount will also be the balance of Supplies Expense after the adjusting entry. After the adjusting entry, the balance in the asset account, Supplies, is the cost of the supplies still on hand. There are Three Steps for a Supplies Adjustment on a work sheet

9 LESSON 6-2 SUPPLIES ADJUSTMENT ON A WORK SHEET1 2 page Write the debit amount. 2.Write the credit amount. 3.Label the two parts of this adjustment.

SUPPLIES ADJUSTMENT ON A WORK SHEET Supplies Account Balance – Supplies on Hand= Supplies Used $ $ = $715.00

11 LESSON 6-2 PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET page Write the debit amount. 2.Write the credit amount. 3.Label the two parts of this adjustment.

PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET Prepaid Insurance Balance – Insurance Coverage Remaining (Unused) = Insurance Coverage Used $ $ = $100.00

PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET Reminder: If Debits equal Credits for each adjustment, the total debits and total credits in the Adjustments columns must also equal. There are three steps for proving the Adjustments columns of a work sheet….

14 LESSON 6-2 PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET page Rule double lines. 2.Add both the Adjustments Debit and Credit columns. Write each column’s total. 1.Rule a single line

15 LESSON 6-2 PREPARING A WORK SHEET page 160 C 1.Write the heading. 2.Record the trial balance. 3.Record the supplies adjustment. 4.Record the prepaid insurance adjustment. 5.Prove the Adjustments columns. 6.Extend all balance sheet account balances. 7.Extend all income statement account balances. 8.Calculate and record the net income (or net loss). 9.Total and rule the Income Statement and Balance Sheet columns.

16 LESSON 6-2

17 LESSON 6-2 1

18 LESSON 6-2 (b) (a) Net Income

19 LESSON 6-2 TERM REVIEW Adjustments- changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period. (p. 157) page 161

To do: APLIA 6.2 Work Together and On Your Own Application Problem Check Clarity for any missing assignments past due!