Student Version o Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. o These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. o In addition, most text book exhibits have been removed as they are available in your text directly.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The Adjusting Process Chapter 3

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe the nature of the adjusting process. 1

Nature of the Adjusting Process o The __________ __________ concept requires that __________ and __________ be reported in the __________ period.

Nature of the Adjusting Process o Under the _________ basis of accounting, __________ are reported on the __________ __________ in the period in which they are __________.

Nature of the Adjusting Process o The accounting concept supporting the reporting of __________ when they are __________ regardless of when cash is __________ is called the __________ __________ concept.

Nature of the Adjusting Process o The accounting concept supporting reporting __________ and related __________ in the __________ period is called the __________ concept, or __________ __________.

Nature of the Adjusting Process o Under the ________ basis of accounting, __________ and __________ are reported on the __________ __________ in the period in which cash is __________ or __________.

The Adjusting Process o Under the __________ basis, some of the accounts need updating at the __________ of the accounting period for the following reasons:  __________________________________________

The Adjusting Process o The analysis and updating of accounts at the __________ of the period __________ the financial statements are prepared is called the __________ __________. o The journal entries that bring the accounts up to date at the __________ of the accounting period are called __________ __________.

Types of Accounts Requiring Adjustment o __________ __________ are the advance payment of __________ __________ and are recorded as __________ when cash is __________.

P REPAID E XPENSES (continued)

P REPAID E XPENSES (concluded)

Types of Accounts Requiring Adjustment o Unearned __________ are the __________ receipt of __________ __________ and are recorded as __________ when cash is __________.

U NEARNED R EVENUES (continued)

U NEARNED R EVENUES (concluded)

Types of Accounts Requiring Adjustment o __________ __________ are unrecorded revenues that have been __________ and for which __________ has yet to be received.

A CCRUED R EVENUES (continued)

(concluded) A CCRUED R EVENUES

Types of Accounts Requiring Adjustment o __________ __________ are unrecorded expenses that have been __________ and for which __________ has yet to be paid.

A CCRUED E XPENSES (continued)

A CCRUED E XPENSES (concluded)

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Journalize entries for accounts requiring adjustment. 2

A DJUSTING E NTRIES

Prepaid Expenses o NetSolutions’ supplies account has a balance of $2,000 on the unadjusted trial balance. Some of these supplies have been used. On December 31, a count reveals that the amount of supplies on hand is $760. Supplies (balance on trial balance) $2,000 Supplies on hand, December 31 – 760 Supplies used $1,240

P REPAID E XPENSES Assets = Liabilities + Owner’s Equity (Expense) Accounting Equation Impact ________

Prepaid Insurance o The debit balance of $2,400 in NetSolutions’ prepaid insurance account represents the December 1 prepayment of insurance for 12 months.

Assets = Liabilities + Owner’s Equity (Expense) Accounting Equation Impact ________ P REPAID I NSURANCE

Impact of Omitting Adjusting Entries

Unearned Revenues o The credit balance of $360 in NetSolutions’ unearned rent account represents the receipt of three months’ rent on December 1 for December, January, and February. At the end of December, one month’s rent has been earned.

U NEARNED R EVENUES Assets = Liabilities + Owner’s Equity (Revenue) Accounting Equation Impact ________

Impact of Omitting Adjusting Entry

Accrued Revenues o NetSolutions signed an agreement with Danker Co. on December 15 to provide services at a rate of $20 per hour. As of December 31, NetSolutions had provided 25 hours of services. The revenue will be billed on January 15.

U NEARNED R EVENUES Assets = Liabilities + Owner’s Equity (Revenue) Accounting Equation Impact ________

Impact of Omitting Adjusting Entry

Accrued Wages o NetSolutions pays it employees biweekly. During December, NetSolutions paid wages of $950 on December 13 and $1,200 on December 27. As of December 31, NetSolutions owes $250 of wages to employees for Monday and Tuesday, December 30 and 31.

A CCRUED W AGES Assets = Liabilities + Owner’s Equity (Expense) Accounting Equation Impact ________

Accrued Wages o NetSolutions paid wages of $1,275 on January 10. This payment includes the $250 of accrued wages recorded on December 31.

I MPACT OF O MITTING A DJUSTING E NTRY

________ Expense o ________ ________, or plant assets, are ________ ________ that are ________ and ________ by a business and are permanent or have a ________ ________. o As time passes, a ________ ________ loses its ability to provide ________ services. This decrease in ________ is called ________.

________ Expense o All ________ ________, except land, lose their ________ and, thus, are said to ________. o As a ________ asset ________, a portion of its cost should be recorded as an ________. This ________ expense is called ________ ________.

________ Expense o The ________ asset account is not ________ (________) when making the related adjusting entry. This is because both the original ________ of a fixed asset and the depreciation recorded since its ________ are reported on the ________ ________. Instead, an account entitled ________ ________ is increased (________). o ________ ________ accounts are called ________ ________, or ________ asset ________.

________ Expense o Normal titles for ________ ________ accounts and their related ________ ________ accounts are as follows:

Depreciation Expense o NetSolutions estimates the depreciation on its office equipment to be $50 for the month of December.

D EPRECIATION E XPENSE Assets = Liabilities + Owner’s Equity (Expense) Accounting Equation Impact ________

Depreciation Expense o The ________ between the original ________ of the office equipment and the ________ in the ________ ________ —________ ________ account is called the ________ ________ of the asset (or ________ ________ ________ ). It is computed as shown below. Book Value of Asset= Cost of the Asset – Accumulated Depreciation of Asset Book Value of Off. Equip. = Cost of Off. Equip. – Acc. Deprec. of Office Equip. Book Value of Off. Equip.= $1,800 – $50 Book Value of Off. Equip.= $1,750

I MPACT OF O MITTING A DJUSTING E NTRY

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Summarize the adjustment process 3

S UMMARY OF A DJUSTMENT P ROCESS (continued)

S UMMARY OF A DJUSTMENT P ROCESS

(continued) S UMMARY OF A DJUSTMENT P ROCESS

(continued) S UMMARY OF A DJUSTMENT P ROCESS

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Prepare an adjusted trial balance 4

________ Trial ________ o The purpose of the ________ trial ________ is to verify the ________ of the total ________ and ________ balances ________ the financial statements are prepared.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the use of vertical analysis in evaluating a company’s performance and financial condition 5

________ Analysis o Comparing each item in a financial statement with a ________ amount from the ________ ________ is referred to as ________ analysis.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The Adjusting Process The End