adjustments and the - mccchorowitk/documents/chapter05_001.pdfadjustments and the worksheet section...

Adjustments and the

Worksheet

Section 1: The Worksheet

Chapter

5

Section Objectives

1. Complete a trial balance on

a worksheet.

2. Prepare adjustments for

unrecorded business

transactions.

McGraw-Hill © 2009 The McGraw-Hill Companies, Inc. All rights reserved.

5-3

ACCOUNT NAME

JT’s Consulting Services

Worksheet

Month Ended December 31, 2010

TRIAL BALANCE BALANCE SHEETADJ. TRIAL BAL.ADJUSTMENTS INCOME STMT.

The worksheet also

has five sections.

The worksheet has

an Account Name column

Each section has

two columns.

DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT

Objective 1 Complete a trial balance on a

worksheet

5-4

1. Enter the general ledger account names.

2. Transfer the general ledger account balances to the Debit

and Credit columns of the Trial Balance section.

3. Total the Debit and Credit columns to prove that the trial

balance is in balance.

4. Place a double rule under each Trial Balance column to

show that the work in that column is complete.

Complete the Trial Balance section in

four steps

5-5

ACCOUNT NAME

Carter Consulting Service

Worksheet


TRIAL BALANCE BALANCE SHEETADJ. TRIAL BAL.ADJUSTMENTS INCOME STATEMENT

CREDITDEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT

Cash

Step 1: Enter the general ledger account names.

CREDIT


DEBIT CREDIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT

ACCOUNT NAME


Worksheet


Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment

Accum. Depr.—Equip.

Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

These four new accounts will

be used for the adjustments.

**If additional new expense accounts

are needed in the adjustment process,

add them to the bottom of the

ACCOUNT NAME column.

Step 1: Enter the general ledger account names.

5-6

Step 2: Transfer the general ledger account balances to

the Debit and Credit columns of the Trial Balance section.

ACCOUNT NAME


Worksheet



CREDITDEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT

83,500

64,400

ACCOUNT ____________________________ ACCOUNT NO. ________

DATE DESCRIPTIONPOSTREF. DEBIT CREDIT DEBIT CREDIT

BALANCE

Nov. 30

Dec. 31

Dec. 31

Dec. 31

Dec. 31

Dec. 31

2010

Bal. forward

J2

J2

J2

J2

J2

26,000

4,000

7,000

500

4,000

65,000

91,000

95,000

88,000

87,500

83,500

Cash 101

Cash

Accounts Rec.

Supplies

Prepaid Rent

Equipment

Accum. Depr.

J. Taylor, Cap.

Accounts Pay.

J. Taylor, Draw.

5-7

CREDIT



ACCOUNT NAME

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

132,000 132,000

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000Step 4: Place a double rule under

each Trial Balance column to show

that the work in that column is

complete.

Step 3: Total the Debit and Credit columns to prove that

the trial balance is in balance.

5-8

CREDIT


DEBIT CREDIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBITDEBIT

132,000 132,000

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000

These adjusting entries are first

entered in the Adjustments

section of the worksheet.

ACCOUNT NAME

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

Objective 2 Prepare adjustments for unrecorded

business transactions

5-9

JT’s Consulting Services began the month with $3,000 in supplies.

At the end of the month, $2,000 in supplies remained.

QUESTION:

What dollar amount of supplies was

used during the month?

ANSWER:

$3,000

- 2,000

$1,000

The Supplies Adjustment

5-10

CREDIT



ACCOUNT NAME


Worksheet


Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

132,000 132,000

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000 (a) 1,000

(a) 1,000

5-11

On November 20, 2010, JT’s Consulting Services paid $7,000 for

the December and January rent. As of December 31, 2010, one

month’s rent had already been used up.

QUESTION:

What dollar amount of rent was

used during the month of December?

ANSWER:

$7,000

- 3,500

$3,500

The Prepaid Adjustment

5-12

CREDIT



ACCOUNT NAME


Worksheet


Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

132,000 132,000

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000 (a) 1,000

(a) 1,000

(b) 3,500

(b) 3,500

5-13

The cost is recorded as an asset and charged to expense over the

time the asset is used for the business.

$ ASSET

Expense

Jan.

2008

Expense

Expense

This expense is called

depreciation.

Depreciation

5-14

QUESTION:

What is straight-line depreciation?

Straight-line depreciation (S/L) allocates

an asset’s cost in equal amounts to each

accounting period of its useful life.

ANSWER:

Cost - salvage value

Estimated months of useful lifeS/L depreciation =

There are several methods to calculate depreciation. JT’s

Consulting Services uses the straight-line method.

5-15

JT’s Consulting Services purchased equipment in November, 2010.

· Cost = $22,000

· Useful life = 5 yrs or 60 months (5 yrs x 12 months)

· Salvage value = $0

QUESTION:

What dollar amount of depreciation expense

should be recorded for the month?

ANSWER:$367

$22,000 - $0

60 monthsCost - salvage value

Estimated months of useful life

Calculating Depreciation

5-16

Equipment

+

Accumulated Depreciation—

Equipment

+

Instead of decreasing the asset account directly, the adjustment for

depreciation is recorded in a contra account named Accumulated

Depreciation—Equipment.

Asset account has a

normal debit balance

Contra asset account has

a normal credit balance

Adjustment for Depreciation

5-17

CREDIT



ACCOUNT NAME


Worksheet


Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

132,000 132,000

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000 (a) 1,000

(a) 1,000

(b) 3,500

(b) 3,500

(c) 367

(c) 367

4,8674,867

When all adjustments are

entered, total and rule the

Adjustments columns.

5-18

Equipment

22,000

Accumulated Depreciation—

Equipment

367

Original cost of equipment

Record of all depreciation

taken on equipment

Book value = Original cost – Accumulated depreciation

= 22,000 – 367

= 21,633

Book Value

Adjustments and the

Worksheet

Section 2: Financial Statements

Chapter

5

Section Objectives

3. Complete the worksheet.

4. Prepare an income statement, statement of

owner's equity, and balance sheet from the

completed worksheet.

5. Journalize and post the adjusting entries.

McGraw-Hill © 2010 The McGraw-Hill Companies, Inc. All rights reserved.

5-20

The Accounting Cycle

Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 7

Record

closing

entries

Step 3

Post the

data about

transactions

Step 4

Prepare

a

worksheet

Step 5

Prepare

financial

statements

Step 6

Record

adjusting

entriesStep 8

Prepare a

postclosing

trial balance

Step 9

Interpret

the financial

information

Step 4

Prepare

a

worksheet

5-21

You have already seen how to prepare the first twosections of a worksheet:

Preparing a worksheet is the fourth step of the

accounting cycle.

You will now learn how to complete a worksheet.

Trial Balance

Adjustments

Objective 3 Complete the worksheet

5-22

Step 1: Combine the figures from the Trial Balance section and the Adjustments

section. Record the results in the Adjusted Trial Balance columns.

CREDIT

BALANCE SHEETADJ. TRIAL BAL. INCOME STMT.

CREDIT DEBIT CREDIT DEBIT

(c) 367

(a) 1,000

(b) 3,500

(c) 367

(a) 1,500

(b) 3,500

DEBIT

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals 132,000 132,000

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

45,000

3,000

4,867 4,867

CREDITDEBIT CREDIT

ACCOUNT NAME

DEBIT

TRIAL BALANCE ADJUSTMENTS

5-23

The accounts that do not have adjustments are extended from the Trial Balance

section to the Adjusted Trial Balance section.

(c) 367

(a) 1,000

(b) 3,500

(c) 367

(a) 1,000

(b) 3,500

83,500

5,000

22,000

7,000

90,000

4,000

7,000

500

35,000

CREDIT


DEBIT CREDIT DEBIT CREDIT DEBIT

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals 120,000 120,000

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000

4,867 4,867

CREDITDEBIT CREDIT

ACCOUNT NAME

DEBIT


5-24

The Supplies account has a $3,000 debit balance in the Trial Balance section

and a $1,000 credit in the Adjustments section.

($3,000 debit and $1,000 credit = $2,000)

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

2,000

(c) 367

(a) 1,000

(b) 3,500

(c) 367

(a) 1,000

(b) 3,500

132,000 132,000

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000

4,867 4,867

83,500

5,000

22,000

7,000

90,000

4,000

7,000

500

35,000

367

CREDIT


CREDIT DEBIT CREDIT DEBIT CREDIT DEBITDEBIT CREDIT

ACCOUNT NAME

DEBIT


5-25

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

2,000

(c) 367

(a) 1,000

(b) 3,500

(c) 367

(a) 1,000

(b) 3,500

132,000 132,000

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000

4,867 4,867

83,500

5,000

22,000

7,000

90,000

4,000

7,000

500

35,000

CREDIT



ACCOUNT NAME

DEBIT


367

1,000

3,500

367

3,500

Step 2: Total the Debit and Credit columns in the Adjusted Trial Balance

section. Confirm that debits equal credits.

132,367 132,367

5-26

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

2,000

(c) 367

(a) 1,000

(b) 3,500

(c) 367

(a) 1,000

(b) 3,500

132,000 132,000

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000

4,867 4,867

83,500

5,000

22,000

7,000

90,000

4,000

7,000

500

35,000

CREDIT



ACCOUNT NAME

DEBIT


367

1,000

3,500

367

3,500

132,367 132,367

For accounts that appear on the balance sheet, enter the amount in the

appropriate column of the Balance Sheet section. For accounts that appear on

the income statement, enter the amount in the appropriate column of the Income

Statement section.

5-27

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

2,000

(c) 367

(a) 1,000

(b) 3,500

(c) 367

(a) 1,000

(b) 3,500

132,000 132,000

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000

4,867 4,867

83,500

5,000

22,000

7,000

90,000

4,000

7,000

500

35,000

CREDIT



ACCOUNT NAME

DEBIT


367

1,000

3,500

367

3,500

132,367 132,367

83,500

5,000

2,000

3,500

22,000

367

7,000

90,000

4,000

35,000

7,000

500

1,000

3,500

367

After all the account balances are transferred to the financial statement

sections, total the Debit and Credit columns.

12,367 35,000 120,000 97,367

5-28

Subtract the smaller total from the larger total in the Income Statement section to

find the Net Income or Net Loss.

Net Income

CREDIT

BALANCE SHEETINCOME STMT.

DEBIT CREDIT DEBIT

83,500

5,000

2,000

22,000

3,500

367

7,000

90,000

4,000

35,000

7,000

500

1,000

367

3,500

35,000 97,36712,367 120,000

367

120,583

TRIAL BALANCE ADJ. TRIAL BAL.ADJUSTMENTS

DEBIT CREDIT CREDIT DEBIT CREDIT

ACCOUNT NAME

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000

83,500

5,000

22,000

4,000

7,000

500

2,000

7,000

90,000

35,000

1,000

367

3,500

132,000 132,000 4,083 4,083

(c) 367

(a) 1,000

(b) 3,500

(c) 367

(a) 1,000

(b) 3,500 3,500

120,583

5-29

Net Income

CREDIT


DEBIT CREDIT DEBIT

83,500

5,000

2,000

22,000

3,500

367

7,000

90,000

4,000

35,000

7,000

500

1,000

367

3,500

35,000 97,36712,367 120,000

367

120,583



ACCOUNT NAME

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000

83,500

5,000

22,000

4,000

7,000

500

2,000

7,000

90,000

35,000

1,000

367

3,500

132,000 132,000 4,083 4,083

(c) 367

(a) 1,000

(b) 3,500

(c) 367

(a) 1,000

(b) 3,500 3,500

120,583

22,633

Enter the amount on the Net Income line. (35,000 – 12,367 = 22,633)

If the credit total is more than the debit total, the firm has net income. . .

5-30

Net Income

CREDIT


DEBIT CREDIT DEBIT

83,500

5,000

2,000

22,000

3,500

367

7,000

90,000

4,000

35,000

7,000

500

1,000

367

3,500

35,000 97,36712,367 120,000

367

120,583



ACCOUNT NAME

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Jason Taylor, Cap.

Accounts Payable

Jason Taylor, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

83,500

7,000

90,000

4,000

35,000

7,000

500

22,000

7,000

5,000

3,000

83,500

5,000

22,000

4,000

7,000

500

2,000

7,000

90,000

35,000

1,000

367

3,500

132,000 132,000 4,083 4,083

(c) 367

(a) 1,000

(b) 3,500

(c) 367

(a) 1,000

(b) 3,500 3,500

120,583

22,633 22,633

35,000 35,000 120,000120,000

Total the Income Statement and the Balance Sheet sections.

5-31


Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 7

Record

closing

entries

Step 3

Post the

data about

transactions

Step 4

Prepare

a

worksheet

Step 5

Prepare

financial

statements

Step 6

Record

adjusting

entriesStep 8

Prepare a

postclosing

trial balance

Step 9

Interpret

the financial

information

Step 5

Prepare

financial

statements

5-32


Income Statement


Revenue

Fees Income $35,000

Expenses

Salaries Expense $7,000

Utilities 500

Supplies Expense 1,000

Rent Expense 3,500

Depreciation Expense - Equipment 367

Total Expenses $12,367

Net Income for the Month $22,633

Objective 4 Prepare financial statements from

the worksheet

5-33


Statement of Owner’s Equity


Jason Taylor, Capital, December 1, 2010 $ 90,000

Net Income for December $22,633

Less Withdrawals for December 4,000

Increase in Capital 18,633

Jason Taylor, Capital, December 31, 2010 $108,633

5-34

The balance sheet in Chapter 4 was prepared using the

account form.


Balance Sheet

December 31, 2010

Assets

Cash $83,500.00

Accounts Receivable 5,000.00

Supplies 2,000.00

Prepaid Rent 3,500.00

Equipment 22,000.00

Total Assets $ 115,633.00

Liabilities

Accounts Payable $ 7,000.00

Owner’s Equity

Jason Taylor, Capital 108,633.00

Total Liabilities and Owner’s Equity $ 115,633.00

5-35


Balance Sheet


Assets

Cash $83,500

Accounts Receivable 5,000

Supplies 2,000

Prepaid Rent 3,500

Equipment 22,000

Less Accumulated Depreciation 367 21,633

Total Assets $115,633

Liabilities and Owner’s Equity

Liabilities

Accounts Payable $ 7,000

Owner’s Equity

Jason Taylor, Capital 108,633

Total Liabilities and Owner’s Equity $115,633

5-36

A financial statement

A permanent part of the accounting record

It is only a tool.

The worksheet is NOT

Objective 5 Journalize and post the

adjusting entries

5-37


Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 7

Record

closing

entries

Step 3

Post the

data about

transactions

Step 4

Prepare

a

worksheet

Step 5

Prepare

financial

statements

Step 6

Record

adjusting

entriesStep 8

Prepare a

postclosing

trial balance

Step 9

Interpret

the financial

information

Step 6

Record

adjusting

entries

5-38

(a) Adjustment for supplies used

(b) Adjustment for expired rent

(c) Adjustment for depreciation

ANSWER:

What adjustments must JT’s

Consulting Services record for

the month?

QUESTION:

5-39

GENERAL JOURNAL PAGE 3

POST.

DATE DESCRIPTION REF . DEBIT CREDIT

2010 Adjusting Entries

Dec. 31 Supplies Expense 517 1000.00

Supplies 121 1000.00

31 Rent Expense 520 3,500.00

Prepaid Rent 137 3,500.00

31 Depr. Expense–Equipment 523 367.00

Accum. Depr.–Equipment 142 367.00

ACCOUNT Supplies Expense ACCOUNT NO. 517

POST. BALANCE

DATE DESCRIPTION REF. DEBIT CREDIT DEBIT CREDIT

2010

Dec. 31 Adjusting J3 1000.00 1000.00

5-40

Thank Youfor using

College Accounting, 12th Edition

Price • Haddock • Farina

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