1. 11–1 McQuaig Bille 1 College Accounting 10 th Edition McQuaig Bille Nobles © 2011 Cengage Learning PowerPoint presented by Douglas Cloud Professor Emeritus of Accounting, Pepperdine University Chapter 11 Work Sheet and Adjusting Entries

2. 11–2 Accounting Language  We have talked about the journals and accounts kept by a merchandising business.  Now we take another step toward completing the accounting cycle by presenting the related adjustments and the work sheet. Review: Insurance expired, $3,600. (The amount expired is the amount used.)

3. 11–3 Review: Additional depreciation, $1,800. (Add to both accounts.) Review: Accrued wages (owed but not yet paid), $2,900. (Add to both accounts.)

4. 11–4 If the amount of supplies held at the end of the accounting period is substantial, then an adjustment should be made to capitalize the supplies that were not consumed during the accounting period. Adjustment for Supplies Marlin & Co. has a balance of $12,000 in the Supplies Expense account. At year end, a count determines that $11,052 of supplies are left.

5. 11–5 Unearned revenue is cash received in advance for goods or services to be delivered or performed later.  A professional sports team sells tickets in advance  A magazine publisher sells subscriptions in advance An unearned revenue account is classified as a liability. Adjustment for Unearned Revenue

6. 11–6 On April 1, Ressor Publishing Company receives $73,000 in cash for subscriptions paid in advance (crediting Unearned Subscriptions). At the end of the year, Ressor finds that $32,400 of the subscriptions had been earned. Adjustment for Unearned Revenue

7. 11–7 On November 1, Trey’s Landscape Supply receives $2,400 in fees for a three-month landscape maintenance course (crediting Unearned Course Fees). On December 31, $1,600 (2/3 of $2,400) has been earned. Adjustment for Unearned Revenue Occasionally, an accounting “rule of thumb” is helpful in determining an accounting procedure. Here’s one for unearned revenue: Any account beginning with the word “Unearned” is always a liability.

8. 11–8 Adjustment for Merchandise Inventory Using the Periodic Inventory System  Under the periodic inventory system, we do not make an entry in the Merchandise Inventory account until an actual physical inventory or count of stock of goods on hand has been taken.  A firm has a Merchandise Inventory balance of $183,000. A count of stock on hand determines the cost of the ending inventory to be $186,000. (continued)

9. STEP 1. Eliminate the amount of the beginning inventory from the Merchandise Inventory account by transferring the amount into Income Summary. Merchandise Inventory Adjustment STEP 2. Enter the ending or latest physical inventory count of Merchandise Inventory (the ending inventory).

10. 11–10 Data for the Adjustments a-b.Ending merchandise inventory, $64,800. The adjustments for inventory generally are placed first. c.Course fees earned, $800.

11. 11–11 Data for the Adjustments d.Ending supplies inventory, $415. e.Insurance expired, $520.

12. Data for the Adjustments f.Additional year’s depreciation of building, $3,500. g.Additional year’s depreciation of equipment, $4,900. 11–12

13. 11–13 (continued) Data for the Adjustments

14. 11–14 Data for the Adjustments h.Wages owed but not paid to employees at end of year, $1,030.

15. 11–15 Trial Balance and Adjustments Sections of Work Sheet

16. 11–16  To reduce the number of columns in the work sheet, the “Adjusted Trial Balance” columns have been eliminated.  The account balances after the adjusting entries are carried directly into the “Income Statement” and “Balance Sheet” columns. Completion of the Work Sheet

17. 11–17 Net Income Completed Work Sheet

18. 11–18 Net Income Completed Work Sheet

19. 11–19 STEP 1.Record the trial balance, and make sure that the total of the Debit column equals the total of the Credit column before going to the adjustments. Completion of the Work Sheet

20. 11–20 STEP 2.Record the adjustments in the “Adjustments” columns, and make sure that the totals are equal before extending the new totals into the “Income Statement” and “Balance Sheet” columns. Completion of the Work Sheet

21. STEP 3.Complete “Income Statement” and “Balance Sheet” columns by recording the adjusted balance for each account using the following classifications. Completion of the Work Sheet

22. 11–22 Completion of the Work Sheet

23. 11–23 (continued) Adjusting Entries

24. 11–24

25. 11–25 Adjustment for Merchandise Inventory Using the Perpetual Inventory System  Under the perpetual inventory system, a business continually maintains a record of each item in stock.  When merchandise is purchased, the Merchandise Inventory account (not the Purchases account) is debited.  If the amount shown by a physical count is less than the computer record, this is called inventory shrinkage.

26. 1.A firm with beginning inventory of $75,000 bought merchandise on account, $50,000. Adjusting Entry — Perpetual Inventory System

27. 11–27 2.Sold merchandise on account for $84,000 having a cost of $60,300. Adjusting Entry — Perpetual Inventory System

28. 11–28 3a.A physical count of inventory revealed that $63,200 was on hand. The perpetual record showed $64,700 ($75,000 + $50,000 ‒ $60,300). Adjusting Entry — Perpetual Inventory System

29. 3b.Suppose, instead, that the physical count of the stock of merchandise ($65,200) was more than the recorded amount ($64,700). The adjusting entry is to debit Merchandise Inventory and credit Cost of Goods Sold for the difference ($65,200 – $64,700 = $500). Adjusting Entry — Perpetual Inventory System

30. 11–30 Comparison of Periodic and Perpetual Systems