Heintz & Parry

20th Edition
Chapter 5

College Accounting Adjusting Entries

and the Work Sheet

END-OF-PERIOD ADJUSTMENTS
1
• Changes occur that affect the business’s
financial condition:
– Equipment wearing out
– Prepaid insurance and supplies being
Prepare end-of-period used up
adjustments. – 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.

MATCHING PRINCIPLE FISCAL YEAR

• Requires the matching of REVENUES EARNED • A 12-month period of time used as an

during an accounting period with the accounting period
EXPENSES INCURRED
• Does not need to be the same as a calendar
• Provides the best measure of net income year

• Necessitates accounts be brought up to date • Many businesses schedule their fiscal year to
before financial statements are prepared end when business is slow
 ADJUSTING ENTRIES
2
Let’s look at some adjusting entries for Jessie
Jane’s Campus Delivery.

Post adjusting entries to

the general ledger.

SUPPLIES SUPPLIES

During June, Jessie purchased supplies During June, Jessie purchased supplies
for $80. These were debited to the for $80. These were debited to the
supplies account. supplies account.

SUPPLIES SUPPLIES
PURCHASED According to an
TB 80 TB 80
IN JUNE inventory of supplies,
Bal. 80 there are only $20
of supplies on hand
at the end of June.

SUPPLIES SUPPLIES

During June, Jessie purchased supplies During June, Jessie purchased supplies
for $80. These were debited to the for $80. These were debited to the
supplies account. supplies account.

SUPPLIES SUPPLIES
TB 80 But unless there is an TB 80
adjusting entry made,
ADJUSTING ENTRY
Bal. 80 $80 of supplies will be Bal. 80 NEEDED!!!!
shown on the
balance sheet.
SUPPLIES SUPPLIES

SUPPLIES SUPPLIES
TB 80 TB 80 $60 is credited to
Supplies to remove
Bal. 80 Bal. 80 the amount of
$80 Purchased during month
Adj. 60 supplies used
– 20 Supplies remaining
during June.
$60 Supplies used

SUPPLIES SUPPLIES

SUPPLIES SUPPLIES EXPENSE SUPPLIES SUPPLIES EXPENSE

TB 80 Adj. 60 TB 80 Adj. 60
Bal. 80 Bal. 80
Adj. 60 Adj. 60
Bal. 20 Now the balance
$60 is debited to Supplies Expense sheet will show $20
to recognize the amount of of supplies!
supplies used during June.

SUPPLIES PREPAID INSURANCE

SUPPLIES SUPPLIES EXPENSE During June, Jessie paid $200 for an

TB 80 Adj. 60 eight-month liability insurance policy
with coverage beginning on June 1.
Bal. 80 Bal. 60
Adj. 60 PREPAID INSURANCE
8-month policy
Bal. 20 June 1–Jan. 31 TB 200
The income statement
will show $60 of supplies
used during June.
PREPAID INSURANCE PREPAID INSURANCE

During June, Jessie paid $200 for an

eight-month liability insurance policy PREPAID INSURANCE
with coverage beginning on June 1. TB 200

PREPAID INSURANCE $200 for 8 months:

TB 200 Now that June is over, we
$200 ÷ 8 = $25 per month
need to remove the cost
of one month’s insurance
from this account.
19

PREPAID INSURANCE PREPAID INSURANCE

PREPAID
PREPAID INSURANCE INSURANCE INSURANCE EXPENSE
TB 200 TB 200 Adj. 25
Adj. 25 Adj. 25

Prepaid Insurance is
credited for $25 to remove Insurance Expense is debited for
June’s insurance coverage $25 to recognize the amount
that has expired. of insurance coverage for June.

PREPAID INSURANCE PREPAID INSURANCE

PREPAID INSURANCE PREPAID INSURANCE

INSURANCE EXPENSE INSURANCE EXPENSE
TB 200 Adj. 25 TB 200 Adj. 25
Adj. 25 Adj. 25 Bal. 25
Bal. 175 Bal. 175

The income statement will

The balance sheet will show
show $25 (1 month) of
$175 (7 months) of
insurance consumed!
prepaid insurance! 24
WAGES EXPENSE WAGES EXPENSE

Jessie paid her part-time employees $650 on

Jessie paid her part-time employees
June 27. Since then, they have earned an
additional $50, but have not yet been paid. $650 on June 27. Since then, they
have earned an additional $50, but
$650 does not include all of the
have not yet been paid.
wages earned by employees
during June.
WAGES EXPENSE WAGES EXPENSE
TB 650 TB 650
An ADJUSTING ENTRY
is needed!
Bal. 650 Bal. 650

WAGES EXPENSE WAGES EXPENSE

WAGES EXPENSE WAGES EXPENSE WAGES PAYABLE

TB 650 TB 650 Adj. 50
Adj. 50
Adj. 50

$50 debit to Wages Expense

Jessie Jane owes the employees
for the additional wages
for the additional wages.
earned during June.
This liability is recorded in
the wages payable account.

WAGES EXPENSE WAGES EXPENSE

WAGES EXPENSE WAGES PAYABLE WAGES EXPENSE WAGES PAYABLE

TB 650 Adj. 50 TB 650 Adj. 50
Adj. 50 Adj. 50 Bal. 50
Bal. 700 Bal. 700

The balance sheet will show the

The income statement will
liability for wages earned in
show ALL wages earned
June that will be paid in July.
by employees in June!
HISTORICAL COST PRINCIPLE USEFUL LIFE

• 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 the
market value of the asset.
• 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.

DEPRECIATION EXPENSE SALVAGE VALUE

• Depreciation is a method of matching an asset’s • The expected market value or selling price of an
original cost against the revenue produced over asset at the end of its useful life
the useful life.
• Also called:
• There are many depreciation methods. (We will – Scrap value, or
use the straight-line method.)
– Residual value
• Depreciation expense is based on estimates of
useful lives and salvage values.

STRAIGHT-LINE DEPRECIATION STRAIGHT-LINE DEPRECIATION

EXAMPLE EXAMPLE

Jessie has motor scooters with an 1st step: Calculate the depreciable cost.
estimated useful live of 3 years, no
salvage value, and an original cost of FORMULA:
$3,600.
Original Salvage Depreciable
– Value =
Because Jessie expects the scooters Cost Cost
to be of no value when the three years
are over, the whole $3,600 cost needs $3,600 – $0 = $3,600
to be spread over the next three years.
STRAIGHT-LINE DEPRECIATION STRAIGHT-LINE DEPRECIATION
EXAMPLE EXAMPLE
2nd step: Determine depreciation
2nd step: Determine depreciation expense for this accounting period.
expense for this accounting period.
FORMULA: FORMULA:

Depreciable Depreciable
Cost $3,600 Cost $3,600
= =
Estimated Since we are trying to compute Estimated 36 months
Useful Life depreciation for one month, Useful Life
we will use months instead
37
of years.

STRAIGHT-LINE DEPRECIATION DEPRECIATION EXPENSE

EXAMPLE
2nd step: Determine depreciation
expense for this accounting period.

FORMULA: Now that we know depreciation

for June is $100, let’s figure out
Depreciable the adjusting entry.
Cost $3,600 $100 per
= =
Estimated 36 months month
Useful Life

DEPRECIATION ACCUMULATED DEPRECIATION

ACCUMULATED
DELIVERY DELIVERY DEPRECIATION—
EQUIPMENT EQUIPMENT DELIVERY EQUIPMENT
TB 3,600 TB 3,600 Adj. 100

We do NOT adjust this account.

It should always reflect the
ORIGINAL COST of the asset. Depreciation is credited to this
account instead of
the asset account.
ACCUMULATED DEPRECIATION BOOK VALUE

• Is a contra-asset account • The value carried on the books or in the

– “Contra” means opposite accounting records
• Has a credit balance (the opposite of an asset)
• Is deducted from the related asset account on • Book Value = Cost of Plant Assets –
the balance sheet Accumulated Depreciation

• Also called undepreciated cost

DEPRECIATION EXPENSE
3
DELIVERY ACCUMULATED
EQUIPMENT DEPRECIATION—
3,600 DEL. EQUIP.
100
Prepare a work sheet.
DEPRECIATION
EXPENSE—
DEL. EQUIP.
100

THE WORK SHEET PREPARING THE WORK SHEET

• Pulls together all of the information needed to:

5 STEPS
– Enter adjusting entries
– Prepare financial statements 1. Prepare the Trial Balance.
2. Prepare the Adjustments.
• Is not a financial statement 3. Prepare the Adjusted Trial Balance.
4. Extend Adjusted Balances to the
• Is not a formal part of the accounting system Income Statement and Balance
Sheet columns.
• Ordinarily, only the accountant uses a work sheet
5. Complete the Work Sheet.
• Commonly in a 10-column format
 Jessie Jane’s Campus Delivery Jessie Jane’s Campus Delivery
Work Sheet Work Sheet
For Month Ended June 30, 20-- For Month Ended June 30, 20--
TRIAL BALANCE TRIAL BALANCE
ACCOUNT TITLE ACCOUNT TITLE
DEBIT CREDIT DEBIT CREDIT

Heading includes:
Step #1: Prepare the trial balance
Name of the company
(before any adjustments)
Name of the working paper
in the first pair of
Date of the accounting
amount columns.
period just ended

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
Cash 370 Cash 370
Accounts Receivable 650 Accounts Receivable 650
Supplies 80 Supplies 80
Prepaid Insurance 200 Prepaid Insurance 200
Delivery Equipment 3,600 Delivery Equipment 3,600
Accum. Depr.—Del. Equip. Accum. Depr.—Del. Equip.
Accounts Payable 1,800 Accounts Payable 1,800
Wages Payable Wages Payable
Jessica Jane, Capital 2000 Jessica Jane, Capital 2,000
Jessica Jane, Drawing This is 150
the same Jessica Jane, Drawing 150
Delivery Fees 2150 Delivery Fees 2,150
Wages Expense trial balance
650 Wages Expense 650
Rent Expense from Chapter 3,
200 Rent Expense Step #2: 200
Prepare the
Supplies Expense
now being
Supplies Expense adjustments.
Telephone Expense 50 shown Telephone Expense 50
Insurance Expenseon a 10-column work sheet. Insurance Expense
Depr. Exp.—Del. Equip. Depr. Exp.—Del. Equip.
5,950 5,950 5,950 5,950

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
Cash 370 Cash 370
Accounts Receivable 650 Accounts Receivable 650
Supplies 80 Supplies 80 (a) 60
Prepaid Insurance 200 Prepaid Insurance 200
Delivery Equipment 3,600 Delivery Equipment 3,600
Accum. Depr.—Del. Equip. Accum. Depr.—Del. Equip.
Accounts Payable 1,800 Accounts Payable 1,800
Wages Payable Wages Payable
Jessica Jane, Capital 2,000 Jessica Jane, Capitalare identified
Adjustments 2,000
Jessica Jane,Let’s record the supplies
Drawing 150 adjustment Jessica Jane, Drawing 150
Delivery Fees 2,150 with aFees
Delivery letter in parentheses. 2,150
we computed earlier:
Wages Expense 650 Wages Expense 650
Rent Expense $60 debit to Supplies
200 Expense; Rent Expense 200
Supplies Expense $60 credit to Supplies. Supplies Expense (a) 60
Telephone Expense 50 Telephone Expense 50
Insurance Expense Insurance Expense
Depr. Exp.—Del. Equip. Depr. Exp.—Del. Equip.
5,950 5,950 5,950 5,950

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
Cash 370 Cash 370
Accounts Receivable 650 Accounts Receivable 650
Supplies 80 (a) 60 Supplies 80 (a) 60
Prepaid Insurance 200 Prepaid Insurance 200 (b) 25
Delivery Equipment 3,600 Delivery Equipment 3,600
Accum. Depr.—Del. Equip. Accum. Depr.—Del. Equip. (d) 100
Accounts Payable 1,800 Accounts Payable 1,800
Wages Payable Wages Payable (c) 50
The remaining
Jessica Jane, Capital adjustments
2,000 Jessica Jane, Capital 2,000
are entered 150
Jessica Jane, Drawing on the Jessica Jane, Drawing 150
Delivery Fees work sheet and the2,150 Delivery Fees 2,150
Wages Expense 650 Wages Expense 650 (c) 50
Rent Expense Adjustments columns200 Rent Expense 200
Supplies Expense are totaled. (a) 60 Supplies Expense (a) 60
Telephone Expense 50 Telephone Expense 50
Insurance Expense Insurance Expense (b) 25
Depr. Exp.—Del. Equip. Depr. Exp.—Del. Equip. (d) 100
5,950 5,950 5,950 5,950

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

TRIAL BALANCE ADJUSTMENTS ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL.
ACCOUNT TITLE
DEBIT CREDIT DEBIT CREDIT TITLE DR. CR. DR. CR. DR. CR.
Cash 370 Cash 370
Accounts Receivable 650 Accts. Rec. 650
Supplies 80 (a) 60 Supplies 80 (a) 60
Prepaid Insurance 200 (b) 25 Ppd. Ins. 200 (b) 25
Delivery Equipment 3,600 Del. Eq. 3600
Accum. Depr.—Del. Equip. (d) 100 A. D.–Del. Eq. (d) 100
Accounts Payable 1,800 Accts. Pay. 1800
Wages Payable (c) 50 Wages Pay. (c) 50
Jessica Jane, Capital 2,000 J. J., Cap. 2000
Jessica Jane, Drawing 150 J. J., Drawing 150
Delivery Fees 2,150 Del. Fees Step #3: Prepare the
2150
Wages Expense 650 (c) 50 Wages Exp. 650 (c) 50
Rent Expense 200 Rent Exp. 200 adjusted trial balance.
The Adjustments
Supplies Expense (a) 60 Sup. Exp. (a) 60
50 columns 50
Telephone Expense Tel. Exp.
Insurance Expense (b) BALANCE!!!
25 Ins. Exp. (b) 25
Depr. Exp.—Del. Equip. (d) 100 D. E.–Del. Eq. (d) 100
5,950 5,950 235 235 5950 5950 235 235

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL.
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370 Cash 370 370
Accts. Rec. 650 Accts. Rec. 650 650
Supplies 80 (a) 60 Supplies 80 (a) 60
Ppd. Ins. 200 (b) 25 Ppd. Ins. 200 (b) 25
Del. Eq 3600 Del. Eq. 3600
$370
A. D..-Del Eq. +/– $0
(d) 100 = $370 A. D.–Del Eq. (d) 100
Accts Pay 1800 Accts. Pay.$650 +/–
1800 $0 = $650
WagesBalance
Pay before (c) 50 Adjusted Wages Pay (c) 50
J. J.,Adjustments
Cap +/– Adjustment =
2000 J. J., Cap 2000
Balance before
J. J., Drawing 150
Balance J. J., Drawing 150 +/– Adjustment = Adjusted
Del. Fees 2150 Adjustments
Del. Fees 2150 Balance
Wages Exp. 650 (c) 50 Wages Exp 650 (c) 50
Rent Exp. 200 Rent Exp. 200
Sup. Exp. (a) 60 Sup. Exp. (a) 60
Tel. Exp. 50 Tel. Exp. 50
Ins. Exp. (b) 25 Ins. Exp. (b) 25
D. E.–Del. Eq. (d) 100 D. E.–Del. Eq. (d) 100
5950 5950 235 235 5950 5950 235 235

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL.
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370 Cash 370 370
Accts. Rec. 650 650 Accts. Rec. 650 650
Supplies 80 (a) 60 20 Supplies 80 (a) 60 20
Ppd. Ins. 200 (b) 25 Ppd. Ins. 200 (b) 25
Del. Eq. 3600 Del. Eq. 3600
A. D.–Del. Eq. (d) 100 A. D.–Del. Eq. (d) 100
Accts Pay 1800 Accts. Pay. 1800
Wages Pay $80 – $60
(c) 50 = $20 Wages Pay. (c) 50
J. J., Cap 2000 J. J., Cap. 2000
Balance 150
J. J., Drawing before +/– Adjustment = Adjusted J. J., Drawing 150 This process continues
Del. Fees
Adjustments 2150 Balance Del. Fees 2150 until ALL accounts
Wages Exp 650 (c) 50 Wages Exp. 650 (c) 50
are included in the
Rent Exp 200 Rent Exp. 200
Sup. Exp. (a) 60 Sup. Exp Adjusted(a)Trial
60 Balance columns.
Tel. Exp. 50 Tel. Exp 50
Ins. Exp. (b) 25 Ins. Exp. (b) 25
D. E.–Del. Eq. (d) 100 D. E.–Del. Eq. (d) 100
5950 5950 235 235 5950 5950 235 235

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL. ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370 Cash 370
Accts. Rec. 650 650 Accts. Rec. 650
Supplies 80 (a) 60 20 Supplies 20
Ppd. Ins. 200 (b) 25 175 Ppd. Ins. 175
Del. Eq. 3600 3600 Del. Eq. 3600
A. D.–Del. Eq. (d) 100 100 A. D.–Del. Eq. 100
Accts. Pay. 1800 1800 Accts. Pay. 1800
Wages Pay (c) 50 50 Wages Pay 50
J. J., Cap. 2000 2000 J. J., Cap. Step #4:2000
Extend adjusted balances
J. J., Drawing 150 150 J. J., Drawing 150
Del. Fees 2150 2150 Del. Fees to the 2150
Income Statement and
Wages Exp 650 (c) 50 700Adjusted
The Wages Exp 700Balance Sheet columns.
Rent Exp. 200 200 columns
Trial Balance Rent Exp 200
Sup. Exp. (a) 60 60
balance!!!! Sup. Exp. 60
Tel. Exp. 50 50 Tel. Exp. 50
Ins. Exp. (b) 25 25 Ins. Exp 25
D. E.–Del. Eq. (d) 100 100 D. E.–Del. Eq. 100
5950 5950 235 235 6100 6100 6100 6100

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 Cash 370
Accts. Rec. 650 Accts. Rec. 650
Supplies 20 Supplies 20
Ppd. Ins. 175 Ppd. Ins. 175
Del. Eq. 3600 Del. Eq. 3600
A. D.–Del. Eq. 100 A. D.–Del. Eq. 100
Accts. Pay. 1800 Accts. Pay. 1800
Wages Pay 50 account in the
Each Wages Pay 50
J. J., Cap 2000 J. J., Cap. 2000 Statement columns
The Income
J. J., Drawing Adjusted
150 Trial Balance columns J. J., Drawing 150
Del. Fees is extended
2150 to either the Del. Fees include all
2150 accounts found on the
Wages Exp 700 Wages Exp 700 income statement…
Rent Exp Income Statement columns
200 Rent Exp 200
Sup. Exp or60the Balance Sheet columns, Sup. Exp
REVENUES
60
AND EXPENSES
Tel. Exp. 50 but not both. Tel. Exp. 50
Ins. Exp. 25 Ins. Exp. 25
D. E.–Del. Eq. 100 D. E.–Del. Eq. 100
6100 6100 6100 6100

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 Cash 370 370
Accts. Rec. 650 Accts. Rec. 650 650
Supplies 20 Supplies 20 ASSETS 20
Ppd. Ins. 175 Ppd. Ins. 175 175
Del. Eq. 3600 Del. Eq. 3600 3600
A. D.–Del. Eq. 100 A. D.–Del. Eq. 100
Accts. Pay. 1800 Accts. Pay. 1800
Wages Pay 50 Wages Pay. 50
J. J., Cap. 2000
The Balance Sheet columns J. J., Cap. 2000
J. J., Drawing 150 J. J., Drawing 150
Del. Fees include the
2150 remaining accounts… Del. Fees 2150
Wages Exp 700ASSETS, LIABILITIES, Wages Exp. 700
Rent Exp 200
CAPITAL, AND DRAWING Rent Exp. 200
Sup. Exp 60 Sup. Exp. 60
Tel. Exp. 50 Tel. Exp. 50
Ins. Exp. 25 Ins. Exp. 25
D. E.–Del. Eq. 100 D. E.–Del. Eq. 100
6100 6100 6100 6100

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370 Cash 370 370
Accts. Rec. 650 650 Accts. Rec. 650 650
Supplies 20 20 Supplies 20 20
Ppd. Ins. 175 175 Ppd. Ins. 175 175
Del. Eq. 3600 3600 Del. Eq. 3600 3600
A. D.–Del. Eq. 100 CONTRA-ASSET 100 A. D.–Del. Eq. 100 100
Accts. Pay. 1800 Accts. Pay. 1800 1800
Wages Pay. 50 Wages Pay. 50 LIABILITIES 50
J. J., Cap. 2000 J. J., Cap. 2000
J. J., Drawing 150 J. J., Drawing 150
Del. Fees 2150 Del. Fees 2150
Wages Exp. 700 Wages Exp. 700
Rent Exp. 200 Rent Exp. 200
Sup. Exp. 60 Sup. Exp. 60
Tel. Exp. 50 Tel. Exp. 50
Ins. Exp. 25 Ins. Exp. 25
D. E.–Del. Eq. 100 D. E.–Del. Eq. 100
6100 6100 6100 6100

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370 Cash 370 370
Accts. Rec. 650 650 Accts. Rec. 650 650
Supplies 20 20 Supplies 20 20
Ppd. Ins. 175 175 Ppd. Ins. 175 175
Del. Eq. 3600 3600 Del. Eq. 3600 3600
A. D.–Del. Eq. 100 100 A. D.–Del. Eq. 100 100
Accts. Pay. 1800 1800 Accts. Pay. 1800 1800
Wages Pay. 50 50 Wages Pay. 50 50
J. J., Cap. 2000 CAPITAL 2000 J. J., Cap. 2000 2000
J. J., Drawing 150 J. J., Drawing 150 DRAWING 150
Del. Fees 2150 Del. Fees 2150
Wages Exp. 700 Wages Exp. 700
Rent Exp. 200 Rent Exp. 200
Sup. Exp. 60 Sup. Exp. 60
Tel. Exp. 50 Tel. Exp 50
Ins. Exp. 25 Ins. Exp. 25
D. E.–Del. Eq. 100 D. E.–Del. Eq. 100
6100 6100 6100 6100

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370 Cash 370 370
Accts. Rec. 650 650 Accts. Rec. 650 650
Supplies 20 20 Supplies 20 20
Ppd. Ins. 175 175 Ppd. Ins. 175 175
Del. Eq. 3600 3600 Del. Eq. 3600 3600
A. D.–Del. Eq. 100 100 A. D.–Del. Eq. 100 100
Accts. Pay. 1800 1800 Accts. Pay. 1800 1800
Wages Pay. 50 50 Wages Pay. 50 50
J. J., Cap. 2000 2000 J. J., Cap. 2000 2000
J. J., Drawing 150 150 J. J., Drawing 150 150
Del. Fees REVENUE
2150 2150 Del. Fees 2150 2150
Wages Exp. 700 Wages Exp. 700 700
Rent Exp. 200 Rent Exp. 200 200
Sup. Exp. 60 Sup. Exp. 60 60
Tel. Exp. 50 Tel. Exp. 50 50 EXPENSES
Ins. Exp. 25 Ins. Exp. 25 25
D. E.–Del. Eq. 100 D. E.–Del. Eq. 100 100
6100 6100 6100 6100

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT ADJ. T. B. INCOME STMT BALANCE SHEET ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370 Cash 370 370
Accts. Rec. 650 650 Accts. Rec. 650 650
Supplies 20 20 Supplies 20 20
Ppd. Ins. 175
Step#5: Complete the work 175
sheet. Ppd. Ins. 175 175
Del. Eq. 3600 3600 Del. Eq. 3600 3600
a. Rule and100
A. D.–Del Eq. total the Income Statement 100 A. D.–Del. Eq. 100 100
Accts Pay. 1800 1800 Accts. Pay. 1800 1800
Wages Pay.
and Balance
50 Sheet columns. 50 Wages Pay. 50 50
J. J., Cap. 2000 2000 J. J., Cap. 2000 2000
J. J., Drawing 150 150 J. J., Drawing 150 150
Del. Fees 2150 2150 Del. Fees 2150 2150
Wages Exp 700 700 Wages Exp. 700 700
Rent Exp. 200 200 Rent Exp. 200 200
Sup. Exp. 60 60 Sup. Exp. 60 60
Tel. Exp. 50 50 Tel. Exp. 50 50
Ins. Exp. 25 25 Ins. Exp. 25 25
D. E.–Del. Eq. 100 100 D. E.–Del. Eq. 100 100
6100 6100 6100 6100 1135 2150 4965 3950

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370 Cash 370 370
Accts. Rec. 650 650 Accts. Rec. 650 650
Supplies 20 20 Supplies 20 20
Ppd. Ins. 175 175 Ppd. Ins. 175 175
Del. Eq. 3600 3600
Step #5: Complete the work sheet. Del. Eq. 3600 3600
A. D.–Del. Eq. 100 100 A. D.–Del. Eq. Step #5: 100Complete the work sheet. 100
Accts. Pay. b. Calculate
1800the difference between 1800 Accts. Pay. c. Calculate
1800 the difference between 1800
Wages Pay the Income
50 Statement Debit and 50 Wages Pay. 50
the2000
Balance Sheet Debit and
50
J. J., Cap. 2000 2000 J. J., Cap. 2000
J. J., Drawing 150 Credit columns. 150 J. J., Drawing 150 Credit columns. 150
Del. Fees ($2,150
2150– $1,135 = 2150
$1,015) Del. Fees 2150 – $3,950 2150
($4,965 = $1,015)
Wages Exp. 700 700 Wages Exp. 700 700
Rent Exp. 200 200 Rent Exp. 200 200
Sup. Exp. 60 60 Sup. Exp. 60 60
Tel. Exp. 50 50 Tel. Exp. 50 50
Ins. Exp. 25 25 Ins. Exp. 25 25
D. E.–Del. Eq. 100 100 D. E.–Del. Eq. 100 100
6100 6100 1135 2150 4965 3950 6100 6100 1135 2150 4965 3950

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370 Cash 370 370
Accts. Rec. 650 650 Accts. Rec. 650 650
Supplies 20 20 Supplies 20 20
Ppd. Ins. 175 175 Ppd. Ins. 175 175
Del. Eq The
3600 differences are the same!!!! 3600 Del. Eq. 3600 3600
A. D.–Del. Eq. 100 100 A. D.–Del. Eq. Step #5:
100Complete the work sheet. 100
Accts. Pay. The 1800
work sheet balances!!! 1800 Accts. Pay. d. Add
1800 the net income to the 1800
Wages Pay. Since the Income
50 Statement Credit 50 Wages Pay. 50 50
J. J., Cap. 2000 2000 J. J., Cap. Income
2000 Statement Debit and 2000
J. J., Drawing column
150 (REVENUES) exceeds 150 J. J., Drawing the Balance Sheet Credit column
150 150
Del. Fees the Income
2150 Statement Debit
2150 Del. Fees 2150 totals).
2150with the smallest
(columns
Wages Exp 700 700
column (EXPENSES), the Wages Exp. 700 700
Rent Exp. 200 200 Rent Exp. 200 200
Sup. Exp. difference
60 is called
60 NET INCOME. Sup. Exp. 60 60
Tel. Exp. 50 50 Tel. Exp. 50 50
Ins. Exp. 25 25 Ins. Exp. 25 25
D. E.–Del. Eq. 100 100 D. E.–Del. Eq. 100 100
6100 6100 1135 2150 4965 3950 6100 6100 1135 2150 4965 3950

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR. TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370 Cash 370 370
Accts. Rec. 650 650 Accts. Rec. 650 650
Supplies 20 20 Supplies 20 20
Ppd. Ins. 175 175 Ppd. Ins. 175 175
Del. Eq. 3600 3600 Del. Eq. 3600 3600
A. D.–Del. Eq. Step #5:
100Complete the work sheet. 100 A. D.–Del. Eq. 100 100
Accts. Pay. 1800 1800 Accts. Pay. 1800 1800
Wages Pay. e. 50
Total and double rule 50 Wages Pay. 50 50
J. J., Cap. 2000
(underline) the columns. 2000 J. J., Cap. 2000 2000
J. J., Drawing 150 150 J. J., Drawing 150 150
Del. Fees 2150 2150 Del. Fees 2150 2150
Wages Exp. 700 700 Wages Exp. 700 700
Rent Exp 200 200 Rent Exp. 200 200
Sup. Exp. 60 60 Sup. Exp. 60 60
Tel. Exp. 50 50 Tel. Exp. 50 50
Ins. Exp. 25 25 Ins. Exp. 25 25
D. E.–Del. Eq. 100 100 D. E.–Del. Eq. 100 100
6100 6100 1135 2150 4965 3950 6100 6100 1135 2150 4965 3950
Net Income 1015 1015 1015 1015
2150 2150 4965 4965
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

FINDING ERRORS ON
4 THE WORK SHEET

If any of the columns on the

work sheet do not balance, you
Describe methods must find the error before you
for finding errors on continue.
the work sheet.
 FOUR TIPS FOR FINDING
ERRORS ON THE WORK SHEET 5
• Check the addition of all columns.

• Check the addition and subtraction required

when extending to the Adjusted Trial Balance Journalize adjusting entries
columns.
from the work sheet.
• 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.

JOURNALIZING ADJUSTING
ADJUSTING ENTRIES
ENTRIES
DATE DESCRIPTION PR DEBIT CREDIT
• The work sheet helps the accountant organize 1 Adjusting Entries
the end-of-period financial information, including
adjusting entries. 2
3
• The accounts are not adjusted until a general 4
Instead of an explanation after
journal entry is made and posted to the general 5
ledger accounts. each adjusting entry,
6 “Adjusting Entries” is
7 written before the first
8 adjusting entry.
9
10
11 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ADJUSTING ENTRIES ADJUSTING ENTRIES

DATE DESCRIPTION PR DEBIT CREDIT DATE DESCRIPTION PR DEBIT CREDIT
1 Adjusting Entries 1 Adjusting Entries
20-- 20--
2 June 30 2 June 30 Supplies Expense 60 00
3 3 Supplies 60 00
4 4
5 5 30 Insurance Expense 25 00
Each adjusting entry is dated
6 the last day of the accounting 6 Prepaid Insurance 25 00
7 period. 7
8 8 30 Wages Expense 50 00
9 9 Wages Payable 50 00
10 10
11 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
11 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 POSTING THE ADJUSTING
ADJUSTING ENTRIES
ENTRIES
DATE DESCRIPTION PR DEBIT CREDIT
1 Adjusting Entries (cont.) Account: Supplies Expense Account No. 523
20--
2 June 30 Depr. Exp.—Del. Equip. 100 00 BALANCE
3 DATE ITEM PR DR. CR. DR. CR.
Accum. Depr.—Del. Equip. 100 00
20--
4 June 30 Adjusting
5
6
7 Posting adjusting entries is
8 the same as posting other entries
9 except “Adjusting” is written
in the item area.
10
11 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

POSTING THE ADJUSTING

ENTRIES
6
Account: Supplies Expense Account No. 523
BALANCE
DATE ITEM PR DR. CR. DR. CR. Explain the cash,
20--
June 30 Adjusting 60 60 modified cash,
and accrual bases
of accounting.

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCRUAL BASIS OF
CASH BASIS OF ACCOUNTING
ACCOUNTING

• Revenues are recorded when EARNED • Revenues are recorded when cash is
• Expenses are recorded when INCURRED RECEIVED
• Recognizes receivables and payables • Expenses are recorded when cash is PAID
• Offers the best matching of revenues and • Similar to the accrual basis if:
expenses – There are few receivables, payables,
– The best method of measuring income and assets
for most businesses • Can vary significantly if:
– Smaller service organizations often – A business has many receivables,
use the cash or modified cash basis payables, and assets
MODIFIED CASH BASIS

• Combines aspects of the cash and accrual

methods
• A business uses the cash basis for recording
revenues and most expenses
• Exceptions are made when cash is paid for
assets with useful lives greater than one
accounting period
• If cash is paid for equipment, buildings,
supplies, or insurance, these are recorded as
assets, and adjustments are made each period
as under the accrual basis