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ADJUSTING ENTRIES AND THE WORK SHEET
This is a huge chapter so get ready for a HUGE powerpoint presentation…. CHAPTER FOUR ADJUSTING ENTRIES AND THE WORK SHEET
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END OF PERIOD ADJUSTMENTS
Changes occur that affect the business’ financial condition: equipment wearing out prepaid insurance and supplies being used up employees earning wages that have not yet been paid Since these events have not been entered into the accounting system, ADJUSTING ENTRIES must be made.
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MATCHING PRINCIPLE Requires the matching of REVENUES EARNED during an accounting period with the EXPENSES INCURRED Provides best measure of net income Necessitates accounts be brought up to date before financial statements are prepared
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FISCAL YEAR A twelve-month period of time used as an accounting period
Many businesses schedule fiscal year to end when business is slow Does not need to be the same as a calendar year.
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ADJUSTING ENTRIES Let’s look at some adjusting entries
for Jessica Jane’s Campus Delivery.
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SUPPLIES During June, Jessica purchased supplies for $80. These were debited to the Supplies account. PURCHASED IN JUNE SUPPLIES $80
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SUPPLIES During June, Jessica purchased supplies for $80. These were debited to the Supplies account. SUPPLIES $80 According to an inventory of Supplies, there are only $20 of Supplies on hand at the end of June. BALANCE ?
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Oh no! That’s not right. We only have $20 left!
SUPPLIES During June, Jessica purchased supplies for $80. These were debited to the Supplies account. But unless there is an adjusting entry made, $80 of Supplies will be shown on the Balance Sheet. SUPPLIES $80 Oh no! That’s not right. We only have $20 left! BALANCE $80
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SUPPLIES During June, Jessica purchased supplies for $80. These were debited to the Supplies account. SUPPLIES $80 ADJUSTING ENTRY NEEDED!!!! BALANCE $?
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SUPPLIES SUPPLIES $80 Bal. $? $80 Supplies - $20 Remaining $60 Used Up
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SUPPLIES $80 $? $60 SUPPLIES $60 is credited to Supplies to remove the
amount of supplies used during June. SUPPLIES $80 Bal. $? $60 Pizza Anyone!!?!
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SUPPLIES $80 $60 $60 SUPPLIES SUPPLIES EXPENSE Bal.
Hey! Do I smell“PIZZA”!!? $60 is debited to Supplies Expense to recognize the amount of supplies used during June.
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SUPPLIES $80 $60 $60 $20 Now Balance Sheet will show $20 of Supplies!
(Income Statement) SUPPLIES SUPPLIES EXPENSE $80 $60 Bal. $60 $20 Bal. Yippeee! Now it’s right!! Great job!! Now Balance Sheet will show $20 of Supplies!
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And the Income Statement
SUPPLIES (Balance Sheet) (Income Statement) SUPPLIES SUPPLIES EXPENSE $80 $60 Bal. $80 Bal. $60 $60 $20 Bal. And the Income Statement will show $60 of Supplies used during June.
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PREPAID INSURANCE During June, Jessica paid $200 for an eight-month liability insurance policy with coverage beginning on June 1. 8-month policy June 1 - Jan. 31 PREPAID INSURANCE $200
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of one month’s insurance
PREPAID INSURANCE During June, Jessica paid $200 for an eight-month liability insurance policy with coverage beginning on June 1. PREPAID INSURANCE $200 Now that June is over, we need to remove the cost of one month’s insurance from this account.
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PREPAID INSURANCE $200 $200 for 8 months: $200 ÷ 8 = $25 per month
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June’s insurance coverage
PREPAID INSURANCE PREPAID INSURANCE $200 $25 Prepaid Insurance is credited $25 to remove June’s insurance coverage that has expired.
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PREPAID INSURANCE $200 $25 $25 Insurance Expense is debited
$25 to recognize the amount of insurance coverage for June.
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The Balance Sheet will show
PREPAID INSURANCE (Balance Sheet) PREPAID INSURANCE INSURANCE EXPENSE $200 $25 $25 $175 Bal. The Balance Sheet will show $175 (7 months) of Prepaid Insurance!
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The Income Statement will
PREPAID INSURANCE (Income Statement) PREPAID INSURANCE INSURANCE EXPENSE $200 $25 $25 Bal. $25 $175 Bal. The Income Statement will show $25 (1 month) of insurance consumed!
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WAGES EXPENSE Yeah!! Jessica paid her part-time employees $650 on June 27. Since then, they have earned an additional $50 but have not been paid yet. SALARIES EXPENSE $650 $650 does not include all of the salaries earned by employees during June. $? Balance
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SALARIES EXPENSE Jessica paid her part-time employees $650 on June 27. Since then, they have earned an additional $50 but have not been paid yet. SALARIES EXPENSE $650 An ADJUSTING ENTRY is needed ! $? Balance
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$50 debit to Salaries Expense for the additional wages
$650 $50 $50 debit to Salaries Expense for the additional wages earned during June.
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SALARIES EXPENSE $650 $50 $50 Jessica Jane owes the employees
SALARIES PAYABLE $650 $50 $50 Jessica Jane owes the employees for the additional wages. This liability is recorded in the Salaries Payable account.
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The Income Statement will show ALL salaries earned
SALARIES EXPENSE (Income Statement) SALARIES EXPENSE SALARIES PAYABLE $650 $50 $50 $700 Bal. The Income Statement will show ALL salaries earned by employees in June!
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SALARIES EXPENSE $650 $50 $50 $50 $700 SALARIES EXPENSE
(Balance Sheet) SALARIES EXPENSE SALARIES PAYABLE $650 $50 $50 $50 Bal. $700 Bal. Balance Sheet will show liability for wages earned in June that will be paid in July.
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HISTORICAL COST PRINCIPLE
Assets are recorded at their actual cost. The cost remains on the books as long as the business owns the asset. No adjustments are made for changes in market value.
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USEFUL LIFE The period of time that an asset is expected to help produce revenues. Useful life expires as a result of wear and tear, or because it no longer satisfies the needs of the business. As this happens, depreciation expense should be recognized and the value of the asset should be reduced.
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DEPRECIATION EXPENSE A method of matching an asset’s original cost against the revenue produced over the useful life. Many depreciation methods (We will use the Straight-Line method.) Depreciation Expense is based on estimates of useful lives and residual values.
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RESIDUAL VALUE The expected market value or selling price of an asset at the end of its useful life Also called: Scrap Value or Salvage Value USED. . . Great condition!
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DEPRECIATION EXAMPLE Jessica has motor scooters with an estimated useful live of 3 years, no residual value, and original cost of $3,600. Because Jessica expects the scooters to be of no value when the three years are over, the whole $3,600 cost needs to be spread over the next three years.
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STRAIGHT-LINE METHOD = = 1st step: Calculate Depreciable Cost.
FORMULA: Original Cost Residual Value Depreciable Cost = = $3,600 $0 $3,600
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Calculating Depreciation Expense
2nd step: Determine depreciation expense for this accounting period. FORMULA: Depreciable Cost $3,600 Estimated Useful Life Since we are trying to compute depreciation for one month, we will use months instead of years.
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Calculating Depreciation Expense
2nd step: Determine depreciation expense for this accounting period. FORMULA: Depreciable Cost $3,600 Estimated Useful Life 36 months
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Calculating Depreciation Expense
2nd step: Determine depreciation expense for this accounting period. FORMULA: Depreciable Cost $3,600 $100 per month Estimated Useful Life 36 months
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Now that we know depreciation for June is $100, let’s figure out the
DEPRECIATION EXPENSE Now that we know depreciation for June is $100, let’s figure out the adjusting entry.
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DEPRECIATION EXPENSE $3,600 DELIVERY EQUIPMENT YA! Don’t forget!
Leave the asset account alone!! $3,600 We do NOT adjust this account. It should always reflect the ORIGINAL COST of the asset.
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DEPRECIATION EXPENSE $3,600 $100 DELIVERY EQUIPMENT
ACCUMULATED DEPRECIATION - DELIVERY EQUIPMENT $3,600 $100 Depreciation is credited to this account instead of the asset account.
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ACCUMULATED DEPRECIATION
Contra-Asset account “Contra” means opposite Credit Balance account balance is “opposite” from the (debit balance) assets It is shown in the asset section of the Balance Sheet as a deduction from its related asset (the scooters).
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BOOK VALUE The value carried on the books or in the accounting records
Book Value equals: Original Cost - Accumulated Depreciation Also called Undepreciated Cost
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Depreciation Expense. - Scooters. Accumulated Depreciation - Scooters
(Balance Sheet) (Income Statement) Depreciation Expense. - Scooters. Motor Scooters $3,600 $100 Accumulated Depreciation - Scooters $100 Book Value = $3,500
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WORK SHEET Pulls together all of the information needed to:
enter adjusting entries and prepare financial statements Not a financial statement Not a formal part of the accounting system Just a tool used by accountants Commonly in a 10-column format
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PREPARING A WORKSHEET 5 STEPS Step 2: Prepare the Adjustments.
Yeah. But they are important so suck it up and watch! Oh bother. Here we go with steps again! 5 STEPS Step 1: Prepare the Trial Balance. Step 2: Prepare the Adjustments. Step 3: Prepare the Adjusted Trial Balance. Step 4: Extend Adjusted Balances to the Income Statement & Balance Sheet columns. Step 5: Complete the Work Sheet.
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(before any adjustments)
TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Cash 370 Accounts Receivable 650 Supplies 80 Prepaid Insurance 200 Scooters 3600 Accum. Depr.-Scooters. Step #1: Prepare the Trial Balance (before any adjustments) in the first pair of amount columns. Accounts Payable 1800 Salaries Payable Jessica Jane, Capital 2000 Jessica Jane, Drawing 150 Delivery Fees 2150 Salaries Expense 650 Rent Expense 200 Supplies Expense Telephone Expense 50 Insurance Expense Depr. Expense-Scooters 5950 5950
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Step #2: Prepare the adjustments.
TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Cash 370 Accounts Receivable 650 Supplies 80 Prepaid Insurance 200 Scooters 3600 Accum. Depr.-Scooters. Accounts Payable 1800 Salaries Payable Jessica Jane, Capital Step #2: Prepare the adjustments. 2000 Jessica Jane, Drawing 150 Delivery Fees 2150 Salaries Expense 650 Rent Expense 200 Supplies Expense Telephone Expense 50 Insurance Expense Depr. Expense-Scooters. 5950 5950
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Let’s record the supplies adjustment $60 debit to Supplies Expense;
TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Cash 370 Accounts Receivable 650 Supplies 80 Prepaid Insurance 200 Scooters 3600 Accum. Depr.-Scooters. Accounts Payable 1800 Salaries Payable Jessica Jane, Capital Let’s record the supplies adjustment we computed earlier: $60 debit to Supplies Expense; $60 credit to Supplies. 2000 Jessica Jane, Drawing 150 Delivery Fees 2150 Salaries Expense 650 Rent Expense 200 Supplies Expense Telephone Expense 50 Insurance Expense Depr. Expense-Scooters. 5950 5950
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Adjustments are identified
TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Cash 370 Accounts Receivable 650 Supplies 80 (a) 60 Prepaid Insurance 200 Scooters 3600 Accum. Depr.-Scooters. Adjustments are identified with a letter in parentheses. THIS IS CALLED “KEYING”. Accounts Payable 1800 Salaries Payable Jessica Jane, Capital 2000 Jessica Jane, Drawing 150 Delivery Fees 2150 Salaries Expense 650 Rent Expense 200 Supplies Expense (a) 60 Telephone Expense 50 Insurance Expense Depr. Expense-Scooters 5950 5950
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The remaining adjustments “Adjustments” columns
TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Cash 370 Accounts Receivable 650 Supplies 80 (a) 60 Prepaid Insurance 200 Scooters 3600 Accum. Depr.-Scooters. Accounts Payable 1800 The remaining adjustments are entered on the worksheet and the “Adjustments” columns are totaled. Salaries Payable Jessica Jane, Capital 2000 Jessica Jane, Drawing 150 Delivery Fees 2150 Salaries Expense 650 Rent Expense 200 Supplies Expense (a) 60 Telephone Expense 50 Insurance Expense Depr. Expense-Scooters. 5950 5950
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TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Cash 370 Accounts Receivable 650 Supplies 80 (a) 60 Prepaid Insurance 200 (b) 25 Scooters 3600 Accum. Depr.-Scooters (d) 100 Accounts Payable 1800 Salaries Payable (c) 50 Jessica Jane, Capital 2000 Jessica Jane, Drawing 150 Delivery Fees 2,150 (c) Salaries Expense 650 50 Rent Expense 200 Supplies Expense (a) 60 Telephone Expense 50 Insurance Expense (b) 25 Depr. Expense-Scooters. (d) 100 5950 5950
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The Adjustments BALANCE!!!
TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT Cash 370 Accounts Receivable The Adjustments BALANCE!!! 650 Supplies 80 (a) 60 Prepaid Insurance 200 (b) 25 Scooters 3600 Accum. Depr.-Scooters. (d) 100 Accounts Payable 1800 Wages Payable (c) 50 Jessica Jane, Capital 2000 Jessica Jane, Drawing 150 Delivery Fees 2150 (c) Wages Expense 650 50 Rent Expense 200 Supplies Expense (a) 60 Telephone Expense 50 Insurance Expense (b) 25 Depr. Expense-Scooters (d) 100 5950 5950 235 235
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Adjusted Trial Balance.
ACCOUNT TITLE TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. DR. CR. DR. CR. DR. CR. Cash 370 Accts. Rec. 650 Supplies 80 (a) 60 Ppd. Ins. 200 (b) 25 Scooters. 3600 Step #3: Prepare the Adjusted Trial Balance. Accum. Depr. (d) 100 Accts. Pay. 1800 Wages Pay. (c) 50 J J, Cap. 2000 J J, Drawing 150 Del. Fees 2150 (c) Wages Exp. 650 50 Rent Exp. 200 Sup. Exp. (a) 60 Tel. Exp 50 Ins. Exp. (b) 25 Depr. Exp. (d) 100 5950 5950 235 235
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$370 $0 $370 +/- = +/- = Adjusted Balance Balance before Adjustments
ACCOUNT TITLE TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 Supplies 80 (a) 60 Ppd. Ins. 200 (b) 25 Scooters $370 3600 +/- $0 = $370 A. D..-Del Eq. (d) 100 Accts Pay 1800 Salaries Pay Balance before Adjustments (c) Adjusted Balance 50 +/- Adjustment = J J, Cap 2000 J J, Drawing 150 Del. Fees 2150 (c) Salaries Exp. 650 50 Rent Exp. 200 Sup. Exp. (a) 60 Tel. Exp. 50 Ins. Exp. (b) 25 Depr. Exp. (d) 100 5950 5950 235 235
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$650 $0 $650 +/- = +/- = Balance before Adjustments Adjusted Balance
ACCOUNT TITLE TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 80 (a) 60 Ppd. Ins. 200 (b) 25 Scooters 3600 A. D..-Del Eq. (d) 100 $650 +/- $0 = $650 Accts. Pay. 1800 Salaries Pay (c) 50 J J, Cap Balance before Adjustments 2000 +/- Adjusted Balance Adjustment = J J, Drawing 150 Del. Fees 2150 (c) Salaries Exp 650 50 Rent Exp. 200 Sup. Exp. (a) 60 Tel. Exp. 50 Ins. Exp. (b) 25 Depr. Exp. (d) 100 5950 5950 235 235
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- $80 $60 $20 = +/- = Balance before Adjustments Adjusted Balance
ACCOUNT TITLE TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 80 (a) 60 20 Ppd. Ins. 200 (b) 25 Scooters 3600 A. D.-Del. Eq. (d) 100 Accts Pay 1800 $80 - $60 = $20 Wages Pay (c) 50 J J, Cap 2000 J J, Drawing Balance before Adjustments 150 Adjusted Balance +/- Adjustment = Del. Fees 2150 (c) Wages Exp 650 50 Rent Exp 200 Sup. Exp. (a) 60 Tel. Exp. 50 Ins. Exp. (b) 25 Depr. Exp. (d) 100 5950 5950 235 235
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This process continues Adjusted Trial Balance.
ACCOUNT TITLE TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 80 (a) 60 20 Ppd. Ins. 200 (b) 25 Scooters 3600 Accum. Depr (d) 100 Accts. Pay. 1800 Salaries Pay. (c) 50 This process continues until ALL accounts are included in the Adjusted Trial Balance. J J, Cap. 2000 J J, Drawing 150 Del. Fees 2150 (c) Salaries Exp. 650 50 Rent Exp. 200 Sup. Exp (a) 60 Tel. Exp 50 Ins. Exp. (b) 25 Depr. Exp. (d) 100 5950 5950 235 235
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Adjusted Trial Balance Balances!!!!
ACCOUNT TITLE TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 80 (a) 60 20 Ppd. Ins. Adjusted Trial Balance Balances!!!! 200 (b) 25 175 Scooters 3600 3600 Accum. Depr. (d) 100 100 Accts. Pay. 1800 1800 Salaries Pay (c) 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 (c) Salaries Exp 650 50 700 Rent Exp. 200 200 Sup. Exp. (a) 60 60 Tel. Exp. 50 50 Ins. Exp. (b) 25 25 Depr. Exp. (d) 100 100 5950 5950 235 235 6100 6100
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Step # 4: Extend Adjusted Balances to the Income Statement and
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 Accts. Rec. 650 Supplies 20 Ppd. Ins. 175 Scooters 3600 Accum. Depr 100 Accts. Pay. 1800 Step # 4: Extend Adjusted Balances to the Income Statement and Balance Sheet columns. Salaries Pay 50 J J, Cap. 2000 J J, Drawing 150 Del. Fees 2150 Salaries Exp 700 Rent Exp 200 Sup. Exp. 60 Tel. Exp. 50 Ins. Exp 25 Depr. Exp. 100 6100 6100
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Adjusted Trial Balance is extended to either the
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 Accts. Rec. 650 Supplies 20 Ppd. Ins. 175 Scooters 3600 Accum Depr. 100 Accts. Pay. 1800 Each account in the Adjusted Trial Balance is extended to either the Income Statement columns or the Balance Sheet columns, but not both. Salaries Pay 50 J J, Cap 2000 J J, Drawing 150 Del. Fees 2150 Salaries Exp 700 Rent Exp 200 Sup. Exp 60 Tel. Exp. 50 Ins. Exp. 25 Depr. Exp. 100 6100 6100
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Income Statement columns include all accounts found on the
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 Accts. Rec. 650 Supplies 20 Ppd. Ins. 175 Scooters 3600 Accum Depr. 100 Accts. Pay. 1800 Income Statement columns include all accounts found on the Income Statement…. REVENUES & EXPENSES Salaries Pay 50 J J, Cap. 2000 J J, Drawing 150 Del. Fees 2150 SalariesExp 700 Rent Exp 200 Sup. Exp 60 Tel. Exp. 50 Ins. Exp. 25 Depr. Exp. 100 6100 6100
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Balance Sheet columns include the remaining accounts…..
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 Accts. Rec. 650 Supplies 20 Ppd. Ins. 175 Scooters 3600 Accum Depr. 100 Accts. Pay. 1800 Balance Sheet columns include the remaining accounts….. ASSETS, LIABILITIES, CAPITAL & DRAWING Salaries Pay 50 J J, Cap. 2000 J J, Drawing 150 Del. Fees 2150 Salaries Exp 700 Rent Exp 200 Sup. Exp 60 Tel. Exp. 50 Ins. Exp. 25 Depr. Exp. 100 6100 6100
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ASSETS ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR.
Cash 370 ASSETS 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Scooters 3600 3600 Accum Depr 100 Accts. Pay. 1800 Salaries Pay. 50 J J, Cap. 2000 J J, Drawing 150 Del. Fees 2150 Salaries Exp. 700 Rent Exp. 200 Sup. Exp. 60 Tel. Exp. 50 Ins. Exp. 25 Depr. Exp. 100 6100 6100
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CONTRA - ASSET ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR.
CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Scooters 3600 CONTRA - ASSET 3600 Accum Depr. 100 100 Accts. Pay. 1800 Salaries Pay. 50 J J, Cap. 2000 J J, Drawing 150 Del. Fees 2150 Salaries Exp. 700 Rent Exp. 200 Sup. Exp. 60 Tel. Exp. 50 Ins. Exp. 25 Depr. Exp. 100 6100 6100
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LIABILITIES ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR.
Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Scooters 3600 3600 Accum Depr 100 100 LIABILITIES Accts. Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 J J, Drawing 150 Del. Fees 2150 Salaries Exp. 700 Rent Exp. 200 Sup. Exp. 60 Tel. Exp. 50 Ins. Exp. 25 Depr. Exp. 100 6100 6100
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CAPITAL ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR.
Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Scooters 3600 3600 Accum Depr 100 100 Accts. Pay. 1800 1800 CAPITAL Wages Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 Del. Fees 2150 Salaries Exp. 700 Rent Exp. 200 Sup. Exp. 60 Tel. Exp. 50 Ins. Exp. 25 Depr. Exp. 100 6100 6100
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DRAWING ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR.
Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Scooters 3600 3600 Accum Depr. 100 100 Accts Pay. 1800 1800 Salaries Pay. 50 50 DRAWING J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 Salaries Exp. 700 Rent Exp. 200 Sup. Exp. 60 Tel. Exp 50 Ins. Exp. 25 Depr. Exp. 100 6100 6100
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REVENUE ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR.
Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Scooters 3600 3600 Accum Depr 100 100 Accts Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing REVENUE 150 150 Del. Fees 2150 2150 Salaries Exp. 700 Rent Exp. 200 Sup. Exp. 60 Tel. Exp. 50 Ins. Exp. 25 Depr. Exp. 100 6100 6100
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EXPENSES ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR.
Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Scooters 3600 3600 Accum Depr 100 100 Accts. Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 EXPENSES Salaries Exp. 700 700 Rent Exp. 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100
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Step#5: Complete the Work Sheet. a. Rule and Total Income Statement
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Step#5: Complete the Work Sheet. a. Rule and Total Income Statement and Balance Sheet columns. Ppd. Ins. 175 175 Scooters 3600 3600 Accum Depr. 100 100 Accts Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Salaries Exp 700 700 Rent Exp. 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100
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ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Scooters 3600 3600 Accum depr 100 100 Accts. Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Salaries Exp. 700 700 Rent Exp. 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950
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Step #5: Complete the Work Sheet. b. Calculate the difference
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies Step #5: Complete the Work Sheet. b. Calculate the difference between the Income Statement Debit and Credit columns. $2,150 - $1,135 = $1,015 20 20 Ppd. Ins. 175 175 Scooter 3600 3600 Accum Depr. 100 100 Accts. Pay. 1800 1800 Salaries Pay 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Salaries Exp. 700 700 Rent Exp. 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950
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Step #5: Complete the Work Sheet. c. Calculate the difference
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies Step #5: Complete the Work Sheet. c. Calculate the difference between the Balance Sheet Debit and Credit columns. $4,965 - $3,950 = $1,015 20 20 Ppd. Ins. 175 175 Scooter 3600 3600 Accum Depr 100 100 Accts. Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Salaries Exp. 700 700 Rent Exp. 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950
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The differences are the same!!!! The work sheet balances!!!
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies The differences are the same!!!! The work sheet balances!!! Since Income Statement credit column (REVENUES) exceeds the Income Statement debit column (EXPENSES), the difference is called NET INCOME. 20 20 Ppd. Ins. 175 175 Scooter 3600 3600 Accum Depr 100 100 Accts. Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Salaries Exp 700 700 Rent Exp. 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950
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Step #5: Complete the Work Sheet. d. Add the Net Income to the
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies Step #5: Complete the Work Sheet. d. Add the Net Income to the Income Statement Debit and the Balance Sheet credit column (columns with smallest totals). 20 20 Ppd. Ins. 175 175 Scooter 3600 3600 Accum Depr 100 100 Accts. Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Salaries Exp. 700 700 Rent Exp. 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950
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Step #5: Complete the Work Sheet.
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies Step #5: Complete the Work Sheet. e. Total and double rule (underline) the columns. 20 20 Ppd. Ins. 175 175 Scooter 3600 3600 Accum Depr 100 100 Accts. Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Salaries Exp. 700 700 Rent Exp 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950 Net Income 1015 1015
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ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Scooter 3600 3600 Accum Depr. 100 100 Accts. Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Salaries Exp. 700 700 Rent Exp. 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950 1015 1015 2150 2150 4965 4965
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FINDING ERRORS ON THE WORK SHEET
If any of the columns on the work sheet do not balance, you must find the error before you continue. Stop crying for cripes sake! It won’t be that bad. The next slide will give you some tips . . . Don’t balance!? You’ve got to be kidding me! I’ll be here all day figuring out why my columns don’t balance..argh!!
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FOUR TIPS FOR FINDING ERRORS ON THE WORK SHEET
Check the addition of all columns. Check the addition and subtraction required when extending to the Adjusted Trial Balance columns. Make sure the adjusted account balances have been extended to the appropriate columns. Make sure that the net income or net loss has been added to the appropriate columns.
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JOURNALIZING ADJUSTING ENTRIES
The work sheet helps the accountant organize the end of period financial information, including adjusting entries. But, the accounts are not adjusted until a General Journal entry is made and posted to the General Ledger accounts!!
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GENERAL JOURNAL Adjusting Entries Instead of an explanation after
DATE DESCRIPTION DEBIT PR CREDIT 1 Adjusting Entries 2 3 4 Instead of an explanation after each adjusting entry, “Adjusting Entries” is written before the first adjusting entry. 5 6 7 8 9 10 11
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Each adjusting entry is dated the last day of the accounting
GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 Adjusting Entries 20xx 2 June 30 3 4 Each adjusting entry is dated the last day of the accounting period. 5 6 7 8 9 10 11
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GENERAL JOURNAL Adjusting Entries DATE DESCRIPTION DEBIT PR CREDIT 1
20XX 2 June 30 Supplies Expense 60 00 3 Supplies 60 00 4 5 30 Insurance Expense 25 00 6 Prepaid Insurance 25 00 7 8 30 Wages Expense 50 00 9 Wages Payable 50 00 10 11
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GENERAL JOURNAL page 2 Adjusting Entries (cont.) DATE DESCRIPTION
DEBIT PR CREDIT 1 Adjusting Entries (cont.) 20XX 2 June 30 Depr. Expense - Scooters. 3 Accum. Depr. - Scooters. 4 Don’t forget to indent your credited account! 5 6 7 8 9 10 11
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Posting to the General Ledger ACCOUNT
523 Supplies Expense Account No. Account: BALANCE DATE ITEM PR DR. CR. DR. CR. 20XX June 30 Adjusting Posting adjusting entries is the same as posting other entries except “Adjusting” is written in the item area.
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Posting to the General Ledger ACCOUNT
523 Supplies Expense Account No. Account: BALANCE DATE ITEM PR DR. CR. DR. CR. 20XX June 30 Adjusting 60 60 Remember, posting is the formal way of entering numbers into a T-account
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Next, from this work sheet,
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. Next, from this work sheet, we can prepare the financial statements. 175 175 Del. Eq. 3600 3600 A. D.-Del. Eq. 100 100 Accts. Pay. 1800 1800 Wages Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Wages Exp. 700 700 Rent Exp. 200 200 Sup. Exp 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950 1015 1015 2150 2150 4965 4965
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PREPARING FINANCIAL STATEMENTS
1st: Prepare the Income Statement. 2nd: Prepare the Statement of Owner’s Equity. 3rd: Prepare the Balance Sheet.
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Heading should contain 3 lines: 1. Company Name 2. Statement Title
Jessica Jane’s Campus Delivery Income Statement For Month Ended June 30, 20-- Three lines in a heading..huh..This reminds me of how many licks does it take to get to the center of a Tootsie Pop— 1,2,crunch…3. Hee hee hee Heading should contain 3 lines: 1. Company Name 2. Statement Title 3. Time period covered or date
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Revenues are shown first.
Jessica Jane’s Campus Delivery Income Statement For Month Ended June 30, 20-- Revenues: Revenues are shown first.
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Revenue ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR.
Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Revenue Del. Eq. 3600 3600 A. D.-Del. Eq. 100 100 Accts. Pay. 1800 1800 Wages Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Wages Exp. 700 700 Rent Exp 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950 1015 1015 2150 2150 4965 4965
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Expenses are shown next.
Jessica Jane’s Campus Delivery Income Statement For Month Ended June 30, 20-- Revenues: Delivery Fees $2,150 Top amount in each column will include “$”. Expenses: Yaeah..but you better remember that the Income Statement always come first! Expenses are shown next. Good Grief! This is the longest slide show of my life..
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Expenses ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR.
Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Expenses Del. Eq. 3600 3600 A. D.-Del. Eq. 100 100 Accts Pay 1800 1800 Wages Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Wages Exp. 700 700 Rent Exp. 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950 1015 1015 2150 2150 4965 4965
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Expenses are listed in either: account number order
Jessica Jane’s Campus Delivery Income Statement For Month Ended June 30, 20-- Revenues: First amount in the column is shown with a “$”. Delivery Fees $2,150 Expenses: Wages Expense $ 700 Rent Expense 200 Supplies Expense 60 Telephone Expense 50 Insurance Expense 25 Depreciation Expense - Delivery Eq. 100 Expenses are listed in either: account number order OR descending order by dollar amount.
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Single underline indicates addition or subtraction.
Jessica Jane’s Campus Delivery Income Statement For Month Ended June 30, 20-- Revenues: Delivery Fees $2,150 Expenses: Wages Expense $ 700 Rent Expense 200 Supplies Expense 60 Telephone Expense 50 Insurance Expense 25 Depreciation Expense - Delivery Eq. 100 Single underline indicates addition or subtraction.
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Next, expenses are totaled.
Jessica Jane’s Campus Delivery Income Statement For Month Ended June 30, 20-- Revenues: Next, expenses are totaled. Delivery Fees $2,150 Expenses: Wages Expense $ 700 Rent Expense 200 Supplies Expense 60 Telephone Expense 50 Insurance Expense 25 Depreciation Expense - Delivery Eq. 100 Total Expenses 1,135 I hate expenses but I LOVE revenues! Don’t you?!
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Jessica Jane’s Campus Delivery Income Statement For Month Ended June 30, 20--
Revenues: Delivery Fees $2,150 Expenses: Wages Expense $ 700 Rent Expense 200 Supplies Expense 60 Telephone Expense 50 Insurance Expense 25 Depreciation Expense - Delivery Eq. 100 Total Expenses 1,135 Net Income $1,015
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Statement starts with the Capital balance as of the beginning of the
Jessica Jane’s Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20-- Jessica Jane, capital, June 1, 20-- All you ever think about is food… This is like at the beginning of every meal, I like start out with a small appetizer.. I can’s help it… Accounting makes me so hungry. Statement starts with the Capital balance as of the beginning of the accounting period.
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Be careful!! Capital from the work sheet
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Del. Eq. 3600 3600 A. D.-Del Eq. 100 100 Accts. Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Be careful!! Capital from the work sheet may not be the beginning capital balance. It is the beginning balance PLUS any additional investments. Wages Exp 700 700 Rent Exp 200 200 Sup. Exp 60 60 Tel. Exp 50 50 Ins. Exp 25 25 Depr. Exp 100 100 6100 6100 1135 2150 4965 3950 1015 1015 2150 2150 4965 4965
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Since Jessica made no additional investments this period, we can
Jessica Jane’s Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20-- Jessica Jane, capital, June 1, 20-- $2,000 Since Jessica made no additional investments this period, we can use the capital balance from the work sheet.
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Next we add in the Net Income/Loss from the Income Statement or
Jessica Jane’s Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20-- Jessica Jane, capital, June 1, 20-- $2,000 Next we add in the Net Income/Loss from the Income Statement or from the work sheet.
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Net Income is found in the Income Statement debit column
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Del. Eq. 3600 3600 A. D.-Del Eq. 100 100 Net Income is found in the Income Statement debit column and the Balance Sheet credit column. Accts. Pay 1800 1800 Wages Pay 50 50 J J, Cap 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Wages Exp 700 700 Rent Exp. 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950 Net Income 1015 1015 2150 2150 4965 4965
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work sheet for the Drawing
Jessica Jane’s Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20-- Jessica Jane, capital, June 1, 20-- $2,000 Net Income for June $1,015 Less: Withdrawals for June Now we will go to the work sheet for the Drawing account.
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Lastly, we calculate the ending Capital balance and double
Jessica Jane’s Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20-- Jessica Jane, capital, June 1, 20-- $2,000 Net Income for June $1,015 Less: Withdrawals for June 150 Increase in Capital 865 Jessica Jane, capital, June 30, 20-- $2,865 Lastly, we calculate the ending Capital balance and double rule the statement.
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Assets ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR.
Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Del. Eq. 3600 3600 Acc. Deprec 100 100 Accts. Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Assets Del. Fees 2150 2150 Salaries Exp. 700 700 Rent Exp. 200 200 Sup. Exp 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950 Net Income 1015 1015 2150 2150 4965 4965
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Jessica Jane’s Campus Delivery Balance Sheet June 30, 20--
Before we do though, can we get a snack? I’m thinking a double cheeseburger with fries? What do you say?! Assets: Cash $370 Accounts Receivable 650 Supplies 20 Prepaid Insurance 175 Delivery Equipment $3,600 Less Accumulated Depr. - Delivery Eq. (100) 3,500 Total Assets $4,715 After we enter the assets, then we list the liabilities and Owner’s Equity. Liabilities: Accounts Payable $1,800
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Caution!!! This capital amount does not include Net Income or Drawing.
ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR. CR. DR. CR. Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 Del. Eq. 3600 3600 A. D.-Del. Eq. 100 100 Accts. Pay. 1800 1800 Salaries Pay. 50 50 J J, Cap. 2000 2000 J J, Drawing 150 150 Del. Fees 2150 2150 Salaries Exp. 700 700 Caution!!! This capital amount does not include Net Income or Drawing. We must use the June 30th capital amount from the Statement of Owner’s Equity. Rent Exp. 200 200 Sup. Exp. 60 60 Tel. Exp. 50 50 Ins. Exp. 25 25 Depr. Exp. 100 100 6100 6100 1135 2150 4965 3950 Net Income 1015 1015 2150 2150 4965 4965
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will put on the Balance Sheet.
Jessica Jane’s Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20-- Jessica Jane, capital, June 1, 20-- $2,000 Net Income for June $1,015 Less: Withdrawals for June 150 Increase in Capital 865 Jessica Jane, capital, June 30, 20-- $2,865 This is the amount we will put on the Balance Sheet.
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Jessica Jane’s Campus Delivery Balance Sheet June 30, 20--
Total Assets $4,715 Liabilities: Accounts Payable $1,800 Wages Payable 50 Total Liabilities $1,850 Owner’s Equity: Jessica Jane, Capital 2,865 Total Liabilities and Owner’s Equity $4,715 It Balances!!! Total Assets of $4,715 equals Total Liabilities and Owner’s Equity of $4,715.
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