Chapter 8! The Accounting Cycle Work Sheet and Adjusting Process Unit 4 Quest (chapter 8 and 12) will be on December 4 (Thursday)

 Before creating the adjusting entries, accountants need an overview of the year end account balances.  Worksheet is an informal business paper which is used to organize and plan the information for the financial statements.  None of the data we enter in worksheet will actually be posted. This is why it is called “informal” business paper. Adjusting Entries and Worksheet

 The first three columns of worksheet are : account titles and trial balance debit / credit amounts. (which have been typically prepared by the accounting clerk.)  The next two columns are used for adjustments (for adjusting entries) to account balances. (These adjustments are prepared by the senior accountant. )  Income statement data in the trial balance columns are copied to the income statement columns. Worksheet

 If an income statement item is affected by an entry in the adjustment column, then a new amount is calculated before it is copied.  Balance sheet data in the trial balance columns are copied to the balance sheet columns.  If a balance sheet item is affected by an entry in the adjustment column, then a new amount is calculated before it is copied. Worksheet

 Each Column is totaled and you should record the total at the bottom of each column.  You take the bigger number and minus the smaller number of the income statements bottom columns.  This difference is the net income in income statement  The worksheet is balanced and ruled to prove the equality of the ledger. Worksheet

 Let’s see page 280 Figure 8.2. Adjusting for Supplies  The Supplies amount is $ in the worksheet.  This amount is inaccurate because supplies are used everyday, but nobody recorded the everyday usage.  When physical count was done, ending inventory of the Supplies account is $526. Worksheet

 Since the ending value of Supplies account has to be $526. We need to solve – X = 526, so X = – 526 = $  We should record in Credit section of Supplies column.  We should also record in debit section of Supplies Expense section, which did not exist in the first place. We would just write the new account title now.  The adjusting journal entry has not been made yet. Adjusting for Supplies

Adjusting for Insurance  Prepaid insurance account has a beginning balance of $6564.  When we carefully examined the insurance slip, only $4070 is the remaining value.  So we have to reduce the ending balance by  We need to credit prepaid insurance by 2494 and debit insurance expense by Adjusting for Insurance

Adjusting for LAPI  Senior accountant discovered that the following 3 purchase invoices should be recorded in December 2014 although the company received them in January  Telephone Invoice 245  Truck Repair Invoice 496  Printer repair Invoice 85  Total Accounts Payable (to be credited) is 826. Adjusting for Late-Arriving Purchase Invoice and Unearned Revenue

Adjusting for LAPI  We should debit Telephone expense by 245.  We should debit Truck expense by 496  We should debit Miscellenius expense by 85  We should credit AP by 826. Adjusting for Late-Arriving Purchase Invoice and Unearned Revenue

Adjusting for Unearned Revenue  A customer made $6000 cash payment in advance for work which will be done in January  When the payment was received, the accounting clerk debited Bank and credited Shipping Revenue for $6000 on December 28.  So senior accountant should debit Shipping Revenue account (to reduce the revenue for 2014) and credit Unearned Revenue (Liability) account by Adjusting for Late-Arriving Purchase Invoice and Unearned Revenue

1. You add or subtract the first 4 columns, depending on what is contained in the adjustment column. This process will result in one number in debit or credit column. 2. Transfer the value in step 1 to appropriate column either under Income Statement or Balance Sheet. Extending the worksheet

1. Add the debit amounts and credit amounts to get the total debit, total credit for columns under Income statement and columns under Balance Sheet. 2. Calculate the difference between the two income statement columns. Confirm that the difference between the two Balance sheet columns are the same. Balancing the worksheet

3.These two differences must be the same number because both numbers represent net income. If the differences are not the same, the worksheet does not balance and it contains one or more errors. These must be found and corrected before the financial statements are prepared. Balancing the worksheet

1) Answer Review Questions – pg 288 #3 and #4. 2) P288 Ex #1 Classwork / Homework