1. 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.

2. c. 2014 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

3. c. 2014 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

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

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

6. 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.

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

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

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

10. 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 __________ __________.

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

12. P REPAID E XPENSES (continued)

13. P REPAID E XPENSES (concluded)

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

15. U NEARNED R EVENUES (continued)

16. U NEARNED R EVENUES (concluded)

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

18. A CCRUED R EVENUES (continued)

19. (concluded) A CCRUED R EVENUES

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

21. A CCRUED E XPENSES (continued)

22. A CCRUED E XPENSES (concluded)

23. c. 2014 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

24. A DJUSTING E NTRIES

26. 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

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

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

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

30. Impact of Omitting Adjusting Entries

31. 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.

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

33. Impact of Omitting Adjusting Entry

34. 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.

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

36. Impact of Omitting Adjusting Entry

37. 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.

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

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

40. I MPACT OF O MITTING A DJUSTING E NTRY

41. ________ 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 ________.

42. ________ 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 ________ ________.

43. ________ 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 ________.

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

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

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

47. 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

48. I MPACT OF O MITTING A DJUSTING E NTRY

49. c. 2014 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

50. S UMMARY OF A DJUSTMENT P ROCESS (continued)

51. S UMMARY OF A DJUSTMENT P ROCESS

52. (continued) S UMMARY OF A DJUSTMENT P ROCESS

53. (continued) S UMMARY OF A DJUSTMENT P ROCESS

54. c. 2014 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

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

56. c. 2014 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

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

58. c. 2014 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