0 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 18, Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax What Do You Think? Why are some accounts not up to date?

1 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea Adjustments show the dollar amount of assets consumed during the period. They also recognize the corporation’s income tax expense. You Will Learn  how and why the Supplies account is adjusted.  how and why the Prepaid Insurance account is adjusted.  how and why the Federal Corporate Income Tax Expense account is adjusted. Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax SECTION 18.2

2 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Term  prepaid expense Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax SECTION 18.2

3 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Adjusting the Supplies Account As supplies are used, they become expenses of the business. A physical inventory is taken at the end of the period to make an adjustment to the Supplies account. Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax SECTION 18.2

4 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax SECTION 18.2

5 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Adjusting the Prepaid Insurance Account A prepaid expense is an expense paid in advance. Insurance premiums are a prepaid expense. An adjustment records the expired portion as a business expense. Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax SECTION 18.2

6 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax SECTION 18.2

7 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Adjusting the Federal Corporate Income Tax Accounts Corporations pay federal corporate income taxes on its net income. A corporation estimates its federal corporate income taxes for the coming year and pays that amount to the government in quarterly installments. When the exact tax amount is determined, the company may find it is required to pay additional taxes or it may qualify for a tax refund. Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax SECTION 18.2

8 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Term Review  prepaid expense An expense paid in advance. Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax SECTION 18.2