1. © 2014 Cengage Learning. All Rights Reserved. Chapter Learning Objectives © 2014 Cengage Learning. All Rights Reserved. LO1 Understand the trial balance section of a work sheet. LO2 Analyze and explain the adjustments for supplies and prepaid insurance. LO3 Understand the Adjustments columns of a work sheet. LO4 Understand the Balance Sheet and Income Statement columns of a work sheet. LO5 Understand how to determine net income or loss. LO7 Understand journalizing and posting the adjusting entries for supplies and prepaid insurance. Ch. 6 Vocab Test Review

2. © 2014 Cengage Learning. All Rights Reserved. Preparing a Trial Balance on a Work Sheet SLIDE 2 LO2 Lesson 6-1 Unlike most financial records, if there is a mistake on a worksheet, you can erase it since it is a “working document” used to organize your numbers so you can create a Balance Sheet and an Income Statement. Soooo, if you write a number in the incorrect column on a Work Sheet, erase it and write it in the correct column. Many businesses choose a one- year fiscal period that ends during a period of low business activity.

3. © 2014 Cengage Learning. All Rights Reserved. Preparing a Trial Balance on a Work Sheet SLIDE 3 LO2 Lesson 6-1 2 2 1.The Trial Balance columns prove the accuracy of the posting you did in your general ledger. Debits = Credits 2.Every account is listed in the order they are found in the general ledger—even if the account does not have a balance (like Supplies Expense). 3.If the Trial Balance columns are not equal and the difference can be evenly divided by 9, then the error is likely a transposed number in one of the accounts.

4. © 2014 Cengage Learning. All Rights Reserved. Supplies Adjustment on a Work Sheet SLIDE 4 LO3 Lesson 6-2 Expense December 31 Adjustment Information: Supply Inventory: 90.00 (Inventory is what is left of your supplies at the end of the month.) Soooooo, how many supplies did you use up? Subtract 90.00 from 620.00, which is the current balance of supplies. The amount you used up (530.00) becomes your Supplies Expense for the month. The amount of supplies used (and adjusted) during a fiscal period is an expense.

5. © 2014 Cengage Learning. All Rights Reserved. Prepaid Insurance Adjustment on a Work Sheet SLIDE 5 LO3 Lesson 6-2 Expense Credit Dec. 31 Adjustment Information: Current Value of Insurance: 750.00—your records show it is 900.00. Realize that 750.00 is the actual current value of your insurance policy at the end of the month, now that another month was used up. How much is your insurance expense? Subtract 750.00 from 900.00, which is the current recorded account balance of your prepaid insurance policy. In this example, the expense is 150.00. NOTE: (You will always have to calculate the adjustment amount for the work sheet.)

6. © 2014 Cengage Learning. All Rights Reserved. Proving Accuracy SLIDE 6 LO4 Lesson 6-2 Adjustments: Changes recorded on a worksheet to update general ledger accounts at the end of the fiscal period. (We now know how much supplies and insurance expense we have.)

7. © 2014 Cengage Learning. All Rights Reserved. Extending Balance Sheet Account Balances on a Work Sheet SLIDE 7 LO5 Lesson 6-3 Debit Balances without Adjustments 1 1 2 2 Debit Balances with Adjustments 3 3 Credit Balances without Adjustments

8. © 2014 Cengage Learning. All Rights Reserved. Extending Income Statement Account Balances on a Work Sheet SLIDE 8 LO5 Lesson 6-3 Sales Balance 1 1 Expense Balances with Adjustments 3 3 2 2 Expense Balances without Adjustments

9. © 2014 Cengage Learning. All Rights Reserved. Recording Net Income and Totaling and Ruling a Work Sheet SLIDE 9 LO6 Lesson 6-3 3 3 Net Income When the Income Statement Credit column is larger than the Income Statement Debit column, the business has a Net Income. (More Sales than Expenses) Net Income is calculated by subtracting the Income Statement Debit column from the Income Statement Credit column. 5,820 minus 2,658 = 3,162. (Sales minus expenses)

10. © 2014 Cengage Learning. All Rights Reserved. Calculating and Recording a Net Loss on a Work Sheet SLIDE 10 LO6 Lesson 6-3 3 3 Net Loss Single Rule 1 1

11. © 2014 Cengage Learning. All Rights Reserved. Adjusting Entry for Supplies SLIDE 11 LO8 Lesson 6-4 Debit Adjusting entries must be posted to the ledger accounts. Start by journalizing them (using the work sheet as a source document.) Then post from the journal to the ledger accounts.

12. © 2014 Cengage Learning. All Rights Reserved. Accrual Basis of Accounting SLIDE 12 LO8 Lesson 6-4 Reporting income when the cash is received and expenses when the cash is paid. (It’s why we do adjusting entries.) Adjustments: Changes recorded on a worksheet to update general ledger accounts at the end of the fiscal period. The adjustments record the expense amounts and reduce the asset accounts.

13. © 2014 Cengage Learning. All Rights Reserved. Partial Ledger Accounts after Posting Adjusting Entries SLIDE 13 LO8 Lesson 6-4 After posting to these four accounts, the account balances are now up to date and reflect how these accounts changed due to the end-of-month adjusting entries. Now we have journalized and posted how much our insurance and supplies expenses are for the month. Adjusting entries must be posted to the ledger accounts.

14. © 2014 Cengage Learning. All Rights Reserved. Chapter Vocabulary Terms © 2014 Cengage Learning. All Rights Reserved. Visit Quizlet and work on the Chapter 6 vocabulary terms.Quizlet You can start with the flash cards to learn the terms, then move on to the scatter game or space race to test your knowledge. Or, you can take a practice test. Thanks for working at being ready for the vocabulary test! Ch. 6 Vocab Test Review