2. What are adjusting entries?  It is when the account data is being brought up-to-date at statement time (also referred to as “making the adjustments”)  In most cases, an adjusting entry assigns amounts of revenue or expense to the appropriate accounting period before finalizing the books for the fiscal period

3. Why do we need to make adjustments?  When Preparing financial statements the accountant must make sure: a) All accounts are brought up to date by completing adjusting entries b) All late transactions are taken into account c) All calculations have been made correctly d) All GAAPs have been followed

4. Where do we record adjusting entries?  Adjusting entries are: 1. Recorded on the worksheet (8 column) under the ADJUSTMENTS column 2. Then extend and balance the worksheet 3. Adjusting entries are journalized and posted to the ledger with closing entries

5. Adjustments  What kind of adjustments are there?  Supplies  Late Payments  Insurance

6. 1. Supplies Are you going to go create a source document, and record a journal entry every time somebody goes to the supply room and takes a 10¢ pencil?? No, that would be silly and extremely wasteful of time

7. Supplies  Supplies account is one of those accounts that is allowed to become inexact between statement dates  Therefore, supplies are recorded at purchase cost and requires an adjustment at the end of each accounting period

8. Example: Supplies  An organization started this year with $1480.90 of supplies. An inventory count on December 31 st reveals that $954.90 was used up. Supplies 1480.90 954.90 526 Adjusting entry used up Adjusting Entry: Supplies Expense 954.90 Supplies 954.90 * Don’t need explanations necessarily on adjustments, but for other entries we do

9. Cassidy Cartage Work Sheet Year Ended December 31, 2011 AccountsTrial BalanceAdjustmentsIncome StatementBalance Sheet DRCRDRCRDRCRDRCR Bank 520.51 Accounts Receivable 18475.00 Supplies 1480.90 954.90 526.00*ENDING* Prepaid Insurance 3892.00 Furniture & Equipment 4196.00 Automotive Equipment 54600.00 Accounts Payable 2510.00 HST Payable 1240.00 HST Recoverable 720.00 Bank Loan 25000.00 P. Marshall, Capital 26223.42 P. Marshall, Drawings 42000.00 Cartage Revenue 213821.00 Bank Charges Expense 3500.00 Light & Heat Expense 3750.00 Miscellaneous Expense 1951.65 Rent Expense 24000.00 Telephone Expense 1800.00 Truck Expense 41951.16 Wages Expense 65957.20 268794.42 Supplies Expense 954.90

10. 2. Late Payments/ Invoices  Late payments or invoices happens when goods/ services are bought or expenses incurred (happen at the end of the year) at the end of the year, they must be recorded in fiscal period they apply to  MATCHING PRINCIPLE  Matching principle states that each expense item related to revenue earned must be recorded in the same accounting period as the revenue it helped to earn

11. Examples of Late Payments  Telephone Bill  Truck Repairs  Miscellaneous expense  And many more Adjusting Entry: Telephone Expense 45.00 Truck Expense 496.00 Misc. Expense 85.00 Accounts Payable 626.00

12. Cassidy Cartage Work Sheet Year Ended December 31, 2011 AccountsTrial BalanceAdjustmentsIncome StatementBalance Sheet DRCRDRCRDRCRDRCR Bank 520.51 Accounts Receivable 18475.00 Supplies 1480.90 954.90 526.00ENDING* Prepaid Insurance 3892.00 Furniture & Equipment 4196.00 Automotive Equipment 54600.00 Accounts Payable 2510.00 626.00 3136.00* HST Payable 1240.00 HST Recoverable 720.00 Bank Loan 25000.00 P. Marshall, Capital 26223.42 P. Marshall, Drawings 42000.00 Cartage Revenue 213821.00 Bank Charges Expense 3500.00 Light & Heat Expense 3750.00 Miscellaneous Expense 1951.65 85.00 2036.65* Rent Expense 24000.00 Telephone Expense 1800.00 45.00 1845.00* Truck Expense 41951.16 496.00 42447.16* Wages Expense 65957.20 268794.42 Supplies Expense 954.90

13. 3. Prepayments  When something is paid in advance, but benefits extend post fiscal period  Examples?  Licenses  Rent  Insurance

14. Example of Prepayment  Insurance- Cassidy Cartage buys a 1 year insurance policy, on August 1 st for $816.00 Entry: Aug. 1 Prepaid Insurance 816.00 Bank816.00 Jan. 1Aug. 1Dec. 31 816.0012 Months 5 Months Cost / Term X Months Used 816/ 12 mons X 5 = $340 Adjusting Entry: Dec. 31 Insurance Expense 340.00 Prepaid Insurance340.00 To record adjustment for insurance used

15. Cassidy Cartage Work Sheet Year Ended December 31, 2011 AccountsTrial BalanceAdjustmentsIncome StatementBalance Sheet DRCRDRCRDRCRDRCR Bank 520.51 Accounts Receivable 18475.00 Supplies 1480.90 954.90 526.00ENDING* Prepaid Insurance 3892.00 340.00 3552.00* Furniture & Equipment 4196.00 Automotive Equipment 54600.00 Accounts Payable 2510.00 626.00 3136.00 HST Payable 1240.00 HST Recoverable 720.00 Bank Loan 25000.00 P. Marshall, Capital 26223.42 P. Marshall, Drawings 42000.00 Cartage Revenue 213821.00 Bank Charges Expense 3500.00 Light & Heat Expense 3750.00 Miscellaneous Expense 1951.65 85.00 2036.65* Rent Expense 24000.00 Telephone Expense 1800.00 45.00 1845.00* Truck Expense 41951.16 496.00 42447.16* Wages Expense 65957.20 268794.42 Supplies Expense 954.90 Insurance Expense 340.00 Net Income

16. Cassidy Cartage Work Sheet Year Ended December 31, 2011 AccountsTrial BalanceAdjustmentsIncome StatementBalance Sheet DRCRDRCRDRCRDRCR Bank 520.51 Accounts Receivable 18475.00 Supplies 1480.90 954.90 526.00ENDING* Prepaid Insurance 3892.00 340.00 3552.00* Furniture & Equipment 4196.00 Automotive Equipment 54600.00 Accounts Payable 2510.00 626.00 3136.00 HST Payable 1240.00 HST Recoverable 720.00 Bank Loan 25000.00 P. Marshall, Capital 26223.42 P. Marshall, Drawings 42000.00 Cartage Revenue 213821.00 Bank Charges Expense 3500.00 Light & Heat Expense 3750.00 Miscellaneous Expense 1951.65 85.00 2036.64* Rent Expense 24000.00 Telephone Expense 1800.00 45.00 1845.00* Truck Expense 41951.16 496.00 42447.16* Wages Expense 65957.20 268794.42 Supplies Expense 954.90 Insurance Expense 340.00 1920.90 144830.91213821.00124589.5155599.42 Net Income 68990.09 213821.00 124589.51

17. Let’s Try it  Exercise #1 p. 308 (t), p. 219 (w)  Calculate the blank figures for supplies & Prepaid Insurance  Exercise #2 p. 308 (t), p. 219 (w)  Prepare the adjusting entries according to the information