Chapter 5

Adjusting Entries and

the Work Sheet

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 Learning
Objective 1
Prepare end-of-period
adjustments.

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End-of-Period Adjustments

Changes occur that affect the business’s

financial condition:
Equipment wearing out
Prepaid insurance and supplies being used up
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.
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Revenue Recognition Principle

Principle states that revenues should be

recognized when earned, regardless of
when cash is received from the customer.
Provides the best measure of net income.

Revenues are considered earned when a

service is provided or a product is sold.

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Matching Principle

Requires the matching of REVENUES

EARNED during an accounting period with
the EXPENSES INCURRED
Provides the best measure of net income
Necessitates accounts be brought up to
date before financial statements are
prepared

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Fiscal Year

A 12-month period of time used as an

accounting period
Does not need to be the same as a
calendar year
Many businesses schedule their fiscal year
to end when business is slow

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 Learning
Objective 2
Post adjusting entries to
the general ledger.

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Adjusting Entries

Let’s look at some adjusting entries for

Damon’s Campus Delivery.

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Supplies

During June, Damon purchased supplies

for $80. These were debited to the supplies
account.

SUPPLIES
PURCHASED
TB 80
IN JUNE

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Supplies (cont.)

During June, Damon purchased supplies

for $80. These were debited to the supplies
account.
SUPPLIES
TB 80 According to an
inventory of supplies,
Bal. 80 there are only $20
of supplies on hand
at the end of June.
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Supplies (cont.)

During June, Damon purchased supplies

for $80. These were debited to the supplies
account.

SUPPLIES
TB 80 But unless there is an
adjusting entry made,
Bal. 80 $80 of supplies will be
shown on the
balance sheet.
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Supplies (cont.)

During June, Damon purchased supplies

for $80. These were debited to the supplies
account.

SUPPLIES
TB 80
ADJUSTING ENTRY
Bal. 80 NEEDED!!!!

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Supplies (cont.)

SUPPLIES
TB 80

Bal. 80 $80 Purchased during month

– 20 Supplies remaining
$60 Supplies used

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Supplies (cont.)

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

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Supplies (cont.)
SUPPLIES
SUPPLIES EXPENSE
TB 80 Adj. 60
Bal. 80
Adj. 60

$60 is debited to Supplies Expense

to recognize the amount of
supplies used during June.
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Supplies (cont.)
SUPPLIES
SUPPLIES EXPENSE
TB 80 Adj. 60
Bal. 80
Adj. 60
Bal. 20
Now the balance
sheet will show $20
of supplies!

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Supplies (cont.)
SUPPLIES
SUPPLIES EXPENSE
TB 80 Adj. 60
Bal. 80 Bal. 60
Adj. 60
Bal. 20
The income statement
will show $60 of supplies
used during June.
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Prepaid Insurance

During June, Damon paid $200 for an

eight-month liability insurance policy with
coverage beginning on June 1.

PREPAID INSURANCE
8-month policy
June 1–Jan. 31 TB 200

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Prepaid Insurance (cont.)

During June, Damon paid $200 for an

eight-month liability insurance policy with
coverage beginning on June 1.
PREPAID INSURANCE
TB 200
Now that June is over, we
need to remove the cost
of one month’s insurance
from this account.

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Prepaid Insurance (cont.)

PREPAID INSURANCE
TB 200

$200 for 8 months:

$200 ÷ 8 = $25 per month

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Prepaid Insurance (cont.)

PREPAID INSURANCE
TB 200
Adj. 25

Prepaid Insurance is
credited for $25 to remove
June’s insurance coverage
that has expired.

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Prepaid Insurance (cont.)

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

Insurance Expense is debited for

$25 to recognize the amount
of insurance coverage for June.
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Prepaid Insurance (cont.)

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

The balance sheet will show

$175 (7 months) of
prepaid insurance!
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Posting The Adjusting Entries in the
General Ledger

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Prepaid Insurance (cont.)

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

The income statement will

show $25 (1 month) of
insurance consumed!
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Wages Expense

Damon paid his part-time employees $650

on June 27. Since then, they have earned
an additional $50, but have not yet been
paid.

WAGES EXPENSE
TB 650
$650 does not include all of the
Bal. 650 wages earned by employees
during June.
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Wages Expense (cont.)

Damon paid his part-time employees $650

on June 27. Since then, they have earned
an additional $50, but have not yet been
paid.

WAGES EXPENSE
TB 650
An ADJUSTING ENTRY
is needed!
Bal. 650
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Wages Expense (cont.)

WAGES EXPENSE
TB 650

Adj. 50

$50 debit to Wages Expense

for the additional wages
earned during June.

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Wages Expense (cont.)

WAGES WAGES
EXPENSE PAYABLE
TB 650 Adj. 50
Adj. 50

Damon owes the employees

for the additional wages.
This liability is recorded in
the wages payable account.
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Wages Expense (cont.)

WAGES WAGES
EXPENSE PAYABLE
TB 650 Adj. 50
Adj. 50
Bal. 700

The income statement will

show ALL wages earned
by employees in June!
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Wages Expense (cont.)

WAGES WAGES
EXPENSE PAYABLE
TB 650 Adj. 50
Adj. 50 Bal. 50
Bal. 700

The balance sheet will show the

liability for wages earned in
June that will be paid in July.
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Historical Cost Principle

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.

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Useful Life

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.

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Depreciation Expense

Depreciation is a method of matching an

asset’s original cost against the revenue
produced over the useful life.
There are many depreciation methods. (We
will use the straight-line method.)
Depreciation expense is based on
estimates of useful lives and salvage
values.

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Salvage Value

The expected market value or selling price

of an asset at the end of its useful life
Also called:
Scrap value, or
Residual value

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Straight-Line Depreciation Example

Damon has motor scooters with an

estimated useful live of 3 years, no salvage
value, and an original cost of $3,600.

Because Damon expects the scooters

to be of no value when the 3 years
are over, the whole $3,600 cost needs
to be spread over the next 3 years.

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Straight-Line Depreciation Example

1st step: Calculate the depreciable cost.

FORMULA:
Original Salvage Depreciable
– Value =
Cost Cost
$3,600 – $0 = $3,600

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Straight-Line Depreciation Example

2nd step: Determine depreciation expense

for this accounting period.
Since we are trying to compute
FORMULA: depreciation for one month,
we will use months instead
Depreciable of years.

Cost $3,600
=
Estimated
Useful Life
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Straight-Line Depreciation Example

2nd step: Determine depreciation expense

for this accounting period.

FORMULA:

Depreciable
Cost $3,600
=
Estimated 36 months
Useful Life
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Straight-Line Depreciation Example

2nd step: Determine depreciation expense

for this accounting period.

FORMULA:

Depreciable
Cost $3,600 $100 per
= =
Estimated 36 months month
Useful Life
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Depreciation Expense

Now that we know depreciation for June is

$100, let’s figure out the adjusting entry.

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Depreciation

DELIVERY
EQUIPMENT
TB 3,600

We do NOT adjust this account.

It should always reflect the
ORIGINAL COST of the asset.

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

Depreciation is credited to this

account instead of
the asset account.
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Book Value

The value carried on the books or in the

accounting records
Book Value = Cost of Plant Assets –
Accumulated Depreciation
Also called undepreciated cost

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Accumulated Depreciation

Is a contra-asset account
“Contra” means opposite
Has a credit balance (the opposite of an
asset)
Is deducted from the related asset account
on the balance sheet

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Depreciation Expense

DELIVERY ACCUMULATED
EQUIPMENT DEPRECIATION—
3,600 DEL. EQUIP.
100
DEPRECIATION
EXPENSE—
DEL. EQUIP.
100

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Figure 5-14

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Figure 5-14 (Continued)

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Figure 5-14 (Concluded)

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 Learning
Objective 3
Prepare a work sheet.

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The Work Sheet

Pulls together all of the information needed to:

Enter adjusting entries
Prepare financial statements
Is not a financial statement
Prepared through an Excel Worksheet.
Is not a formal part of the accounting system
Ordinarily, only the accountant uses a work
sheet

Commonly in a 10-column format

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Preparing the Work Sheet

5 STEPS
Prepare the Trial Balance.
Prepare the Adjustments.
Prepare the Adjusted Trial Balance.
Extend Adjusted Balances to the
Income Statement and Balance Sheet
columns.
Complete the Work Sheet.

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 Damon’s Campus Delivery Work Sheet For Month Ended June 30, 20--

TRIAL BALANCE
ACCOUNT TITLE
DEBIT CREDIT

Heading includes:
Name of the company
Name of the working paper
Date of the accounting
period just ended

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 Damon’s Campus Delivery
Work Sheet
For Month Ended June 30, 20--
TRIAL BALANCE
ACCOUNT TITLE
DEBIT CREDIT

Step #1: Prepare the trial balance

(before any adjustments)
in the first pair of
amount columns.

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

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 ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
Cash 370
Accounts Receivable 650
Supplies 80
Prepaid Insurance 200
Delivery Equipment 3,600
Accum. Depr.—Del. Equip.
Accounts Payable 1,800
Wages Payable
D. Williams, Capital 2,000
D. Williams, Drawing 150
Delivery Fees 2,150
Wages Expense 650
Rent Expense Step #2: 200
Prepare the
Supplies Expense adjustments.
Telephone Expense 50
Insurance Expense
Depr. Exp.—Del. Equip.
5,950 5,950

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 ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
Cash 370
Accounts Receivable 650
Supplies 80
Prepaid Insurance 200
Delivery Equipment 3,600
Accum. Depr.—Del. Equip.
Accounts Payable 1,800
Wages PayableLet’s record the supplies adjustment
D. Williams, Capital 2,000
D. Williams, Drawing we computed
150 earlier:
Delivery Fees $60 debit to Supplies Expense;
2,150
Wages Expense 650
Rent Expense $60 credit
200
to Supplies.
Supplies Expense
Telephone Expense 50
Insurance Expense
Depr. Exp.—Del. Equip.
5,950 5,950

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 ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
Cash 370
Accounts Receivable 650
Supplies 80 (a) 60
Prepaid Insurance 200
Delivery Equipment 3,600
Accum. Depr.—Del. Equip.
Accounts Payable 1,800
Wages Payable
D. Williams, Capital 2,000
D. Williams, Drawing 150
Adjustments
Delivery Fees are identified 2,150
with Expense
Wages a letter in parentheses. 650
Rent Expense 200
Supplies Expense (a) 60
Telephone Expense 50
Insurance Expense
Depr. Exp.—Del. Equip.
5,950 5,950

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 ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
Cash 370
Accounts Receivable 650
Supplies 80 (a) 60
Prepaid Insurance 200
Delivery Equipment 3,600
Accum. Depr.—Del. Equip.
Accounts Payable The remaining adjustments
1,800
Wages Payable
D. Williams, Capital are entered on 2,000
the
D. Williams, Drawing work sheet
150 and the
Delivery Fees Adjustments columns
2,150
Wages Expense 650
Rent Expense are totaled.
200
Supplies Expense (a) 60
Telephone Expense 50
Insurance Expense
Depr. Exp.—Del. Equip.
5,950 5,950

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 ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
Cash 370
Accounts Receivable 650
Supplies 80 (a) 60
Prepaid Insurance 200 (b) 25
Delivery Equipment 3,600
Accum. Depr.—Del. Equip. (d) 100
Accounts Payable 1,800
Wages Payable (c) 50
D. Williams, Capital 2,000
D. Williams, Drawing 150
Delivery Fees 2,150
Wages Expense 650 (c) 50
Rent Expense 200
Supplies Expense (a) 60
Telephone Expense 50
Insurance Expense (b) 25
Depr. Exp.—Del. Equip. (d) 100
5,950 5,950

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 ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS
DEBIT CREDIT DEBIT CREDIT
Cash 370
Accounts Receivable 650
Supplies 80 (a) 60
Prepaid Insurance 200 (b) 25
Delivery Equipment 3,600
Accum. Depr.—Del. Equip. (d) 100
Accounts Payable 1,800
Wages Payable (c) 50
D. Williams, Capital 2,000
D. Williams, Drawing 150
Delivery Fees 2,150
Wages Expense 650 (c) 50
Rent Expense 200 The Adjustments
Supplies Expense (a) 60
Telephone Expense 50 columns
Insurance Expense (b) BALANCE!!!
25
Depr. Exp.—Del. Equip. (d) 100
5,950 5,950 235 235

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 ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL.
TITLE DR. CR. DR. CR. DR. CR.
Cash 370
Accts. Rec. 650
Supplies 80 (a) 60
Ppd. Ins. 200 (b) 25
Del. Eq. 3600
A. D.–Del. Eq. (d) 100
Accts. Pay. 1800
Wages Pay. (c) 50
D.W., Cap. 2000
D.W., Drawing 150
Del. Fees Step #3: Prepare the
2150
Wages Exp. 650 (c) 50
Rent Exp. 200
adjusted trial balance.
Sup. Exp. (a) 60
Tel. Exp. 50
Ins. Exp. (b) 25
D. E.–Del. Eq. (d) 100
5950 5950 235 235

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL.
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650
Supplies 80 (a) 60
Ppd. Ins. 200 (b) 25
Del. Eq
$370
A. D..-Del Eq.
3600
+/– $0
(d) 100 = $370
Accts Pay 1800
Balance
Wages Pay before (c) 50 Adjusted
+/– Adjustment =
Adjustments
D. W., Cap
D. W., Drawing 150
2000 Balance
Del. Fees 2150
Wages Exp. 650 (c) 50
Rent Exp. 200
Sup. Exp. (a) 60
Tel. Exp. 50
Ins. Exp. (b) 25
D. E.–Del. Eq. (d) 100
5950 5950 235 235

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL.
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 80 (a) 60
Ppd. Ins. 200 (b) 25
Del. Eq. 3600
A. D.–Del Eq. (d) 100
Accts. Pay.$650 +/–
1800 $0 = $650
Wages Pay (c) 50
D.W.,Balance before
Cap
D.W., Drawing 150 +/– Adjustment = Adjusted
2000
Adjustments 2150
Del. Fees Balance
Wages Exp 650 (c) 50
Rent Exp. 200
Sup. Exp. (a) 60
Tel. Exp. 50
Ins. Exp. (b) 25
D. E.–Del. Eq. (d) 100
5950 5950 235 235

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL.
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 80 (a) 60 20
Ppd. Ins. 200 (b) 25
Del. Eq. 3600
A. D.–Del. Eq. (d) 100
Accts Pay 1800
Wages Pay $80 – $60
(c) 50 = $20
D.WJ., Cap 2000
D.WJ.,Balance before +/– Adjustment = Adjusted
Drawing 150
Del. Fees
Adjustments
Wages Exp 650
2150
(c) 50 Balance
Rent Exp 200
Sup. Exp. (a) 60
Tel. Exp. 50
Ins. Exp. (b) 25
D. E.–Del. Eq. (d) 100
5950 5950 235 235

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL.
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 80 (a) 60 20
Ppd. Ins. 200 (b) 25
Del. Eq. 3600
A. D.–Del. Eq. (d) 100
Accts. Pay. 1800
Wages Pay. (c) 50
D.W., Cap. 2000
D.W., Drawing 150 This process continues
Del. Fees 2150 until ALL accounts
(c) 50
Wages Exp. 650 are included in the
Rent Exp. 200
Sup. Exp Adjusted(a)Trial
60 Balance columns.
Tel. Exp 50
Ins. Exp. (b) 25
D. E.–Del. Eq. (d) 100
5950 5950 235 235

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT TRIAL BAL. ADJUSTMENTS ADJ. TRIAL BAL.
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 80 (a) 60 20
Ppd. Ins. 200 (b) 25 175
Del. Eq. 3600 3600
A. D.–Del. Eq. (d) 100 100
Accts. Pay. 1800 1800
Wages Pay (c) 50 50
D.W., Cap. 2000 2000
D.W., Drawing 150 150
Del. Fees 2150 2150
Wages Exp 650 (c) 50 700Adjusted
The
Rent Exp. 200 200 columns
Trial Balance
Sup. Exp. (a) 60 60
balance!!!!
Tel. Exp. 50 50
Ins. Exp. (b) 25 25
D. E.–Del. Eq. (d) 100 100
5950 5950 235 235 6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370
Accts. Rec. 650
Supplies 20
Ppd. Ins. 175
Del. Eq. 3600
A. D.–Del. Eq. 100
Accts. Pay. 1800
Wages Pay 50
D.W., Cap. Step #4:2000Extend adjusted balances
D.W., Drawing 150
Del. Fees to the 2150
Income Statement and
Wages Exp 700Balance Sheet columns.
Rent Exp 200
Sup. Exp. 60
Tel. Exp. 50
Ins. Exp 25
D. E.–Del. Eq. 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370
Accts. Rec. 650
Supplies 20
Ppd. Ins. 175
Del. Eq. 3600
A. D.–Del. Eq. 100
Accts. Pay. 1800
Wages Pay
D.W., Cap
Each
50 account in the
2000
D.W., Drawing Adjusted
150 Trial Balance columns
Del. Fees is extended
2150 to either the
Wages Exp 700
Rent Exp Income Statement columns
200
Sup. Exp or60the Balance Sheet columns,
Tel. Exp. 50 but not both.
Ins. Exp. 25
D. E.–Del. Eq. 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370
Accts. Rec. 650
Supplies 20
Ppd. Ins. 175
Del. Eq. 3600
A. D.–Del. Eq. 100
Accts. Pay. 1800
Wages Pay 50
D.W., Cap. The Income
2000 Statement columns
D.W., Drawing 150
Del. Fees include all
2150accounts found on the
Wages Exp 700 income statement…
Rent Exp
Sup. Exp
REVENUES
200
60
AND EXPENSES
Tel. Exp. 50
Ins. Exp. 25
D. E.–Del. Eq. 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370
Accts. Rec. 650
Supplies 20
Ppd. Ins. 175
Del. Eq. 3600
A. D.–Del. Eq. 100
Accts. Pay. 1800
Wages Pay 50
D.W., Cap. The Balance
2000 Sheet columns
D.W., Drawing 150
Del. Fees include 2150
the remaining accounts…
Wages Exp 700ASSETS, LIABILITIES,
Rent Exp
Sup. Exp
CAPITAL,
200
60
AND DRAWING
Tel. Exp. 50
Ins. Exp. 25
D. E.–Del. Eq. 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies
Ppd. Ins.
20
175 ASSETS 20
175
Del. Eq. 3600 3600
A. D.–Del. Eq. 100
Accts. Pay. 1800
Wages Pay. 50
D.W., Cap. 2000
D.W., Drawing 150
Del. Fees 2150
Wages Exp. 700
Rent Exp. 200
Sup. Exp. 60
Tel. Exp. 50
Ins. Exp. 25
D. E.–Del. Eq. 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. 3600 3600
A. D.–Del. Eq. 100 CONTRA-ASSET 100
Accts. Pay. 1800
Wages Pay. 50
D.W., Cap. 2000
D.W., Drawing 150
Del. Fees 2150
Wages Exp. 700
Rent Exp. 200
Sup. Exp. 60
Tel. Exp. 50
Ins. Exp. 25
D. E.–Del. Eq. 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. 3600 3600
A. D.–Del. Eq. 100 100
Accts. Pay.
Wages Pay.
1800
50 LIABILITIES 1800
50
D.W., Cap. 2000
D.W., Drawing 150
Del. Fees 2150
Wages Exp. 700
Rent Exp. 200
Sup. Exp. 60
Tel. Exp. 50
Ins. Exp. 25
D. E.–Del. Eq. 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. 3600 3600
A. D.–Del. Eq. 100 100
Accts. Pay. 1800 1800
Wages Pay. 50 50
D.W., Cap. 2000 CAPITAL 2000
D.W., Drawing 150
Del. Fees 2150
Wages Exp. 700
Rent Exp. 200
Sup. Exp. 60
Tel. Exp. 50
Ins. Exp. 25
D. E.–Del. Eq. 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. 3600 3600
A. D.–Del. Eq. 100 100
Accts. Pay. 1800 1800
Wages Pay. 50 50
D.W., Cap. 2000 2000
D.W., Drawing 150 DRAWING 150
Del. Fees 2150
Wages Exp. 700
Rent Exp. 200
Sup. Exp. 60
Tel. Exp 50
Ins. Exp. 25
D. E.–Del. Eq. 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. 3600 3600
A. D.–Del. Eq. 100 100
Accts. Pay. 1800 1800
Wages Pay. 50 50
D.W., Cap. 2000 2000
D.W., Drawing 150 150
Del. Fees REVENUE
2150 2150
Wages Exp. 700
Rent Exp. 200
Sup. Exp. 60
Tel. Exp. 50
Ins. Exp. 25
D. E.–Del. Eq. 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. 3600 3600
A. D.–Del. Eq. 100 100
Accts. Pay. 1800 1800
Wages Pay. 50 50
D.W., Cap. 2000 2000
D.W., Drawing 150 150
Del. Fees 2150 2150
Wages Exp. 700 700
Rent Exp. 200 200
EXPENSES
Sup. Exp. 60 60
Tel. Exp. 50 50
Ins. Exp. 25 25
D. E.–Del. Eq. 100 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins.
Del. Eq. Step#5:
175
3600 Complete the work sheet.
175
3600
a. Rule and100
A. D.–Del Eq. total the Income Statement 100
Accts Pay.
Wages Pay.
and Balance
1800
50 Sheet columns. 1800
50
D.W., Cap. 2000 2000
D.W., Drawing 150 150
Del. Fees 2150 2150
Wages Exp 700 700
Rent Exp. 200 200
Sup. Exp. 60 60
Tel. Exp. 50 50
Ins. Exp. 25 25
D. E.–Del. Eq. 100 100
6100 6100

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. 3600 3600
A. D.–Del. Eq. 100 100
Accts. Pay. 1800 1800
Wages Pay. 50 50
D.W., Cap. 2000 2000
D.W., Drawing 150 150
Del. Fees 2150 2150
Wages Exp. 700 700
Rent Exp. 200 200
Sup. Exp. 60 60
Tel. Exp. 50 50
Ins. Exp. 25 25
D. E.–Del. Eq. 100 100
6100 6100 1135 2150 4965 3950

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. Step #5: Complete the work sheet.
3600 3600
A. D.–Del. Eq. 100 100
Accts. Pay. b. Calculate
1800the difference between 1800
Wages Pay the Income
50 Statement Debit and 50
D.W., Cap. 2000 2000
D.W., Drawing 150 Credit columns. 150
Del. Fees ($2,150
2150– $1,135 = 2150
$1,015)
Wages Exp. 700 700
Rent Exp. 200 200
Sup. Exp. 60 60
Tel. Exp. 50 50
Ins. Exp. 25 25
D. E.–Del. Eq. 100 100
6100 6100 1135 2150 4965 3950

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. 3600 3600
A. D.–Del. Eq. Step #5:100Complete the work sheet. 100
Accts. Pay. c. Calculate
1800 the difference between 1800
Wages Pay. 50 50
D.W, Cap. the2000
Balance Sheet Debit and 2000
D.W., Drawing 150 Credit columns. 150
Del. Fees ($4,965
2150 – $3,950 2150
= $1,015)
Wages Exp. 700 700
Rent Exp. 200 200
Sup. Exp. 60 60
Tel. Exp. 50 50
Ins. Exp. 25 25
D. E.–Del. Eq. 100 100
6100 6100 1135 2150 4965 3950

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq The
3600 differences are the same!!!! 3600
A. D.–Del. Eq. 100 100
Accts. Pay. The 1800
work sheet balances!!! 1800
Wages Pay. Since the Income
50 Statement Credit 50
D.W., Cap. 2000 2000
D.W., Drawing column
150 (REVENUES) exceeds 150
Del. Fees the Income
2150 Statement Debit
2150
Wages Exp 700column (EXPENSES),
700 the
Rent Exp. 200 200
Sup. Exp. difference
60 is called
60 NET INCOME.
Tel. Exp. 50 50
Ins. Exp. 25 25
D. E.–Del. Eq. 100 100
6100 6100 1135 2150 4965 3950

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. 3600 3600
A. D.–Del. Eq. Step #5:
100Complete the work sheet. 100
Accts. Pay. d. Add
1800 the net income to the 1800
Wages Pay. 50 50
D.W., Cap. Income
2000 Statement Debit and 2000
D.W., Drawing the Balance Sheet Credit column
150 150
Del. Fees (columns
2150with the smallest
2150 totals).
Wages Exp. 700 700
Rent Exp. 200 200
Sup. Exp. 60 60
Tel. Exp. 50 50
Ins. Exp. 25 25
D. E.–Del. Eq. 100 100
6100 6100 1135 2150 4965 3950

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. 3600 3600
A. D.–Del. Eq.
Accts. Pay.
Step #5:
100Complete the work sheet.
1800
100
1800
Wages Pay. e. 50
Total and double rule 50
D.W., Cap. (underline)
2000 the columns. 2000
D.W., Drawing 150 150
Del. Fees 2150 2150
Wages Exp. 700 700
Rent Exp 200 200
Sup. Exp. 60 60
Tel. Exp. 50 50
Ins. Exp. 25 25
D. E.–Del. Eq. 100 100
6100 6100 1135 2150 4965 3950
Net Income 1015 1015
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ACCOUNT ADJ. T. B. INCOME STMT. BALANCE SHEET
TITLE DR. CR. DR. CR. DR. CR.
Cash 370 370
Accts. Rec. 650 650
Supplies 20 20
Ppd. Ins. 175 175
Del. Eq. 3600 3600
A. D.–Del. Eq. 100 100
Accts. Pay. 1800 1800
Wages Pay. 50 50
D.W., Cap. 2000 2000
D.W., Drawing 150 150
Del. Fees 2150 2150
Wages Exp. 700 700
Rent Exp. 200 200
Sup. Exp. 60 60
Tel. Exp. 50 50
Ins. Exp. 25 25
D. E.–Del. Eq. 100 100
6100 6100 1135 2150 4965 3950
1015 1015
2150 2150 4965 4965
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 Learning
Objective 4
Describe methods for
finding errors on the work
sheet.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a
certain product or service or otherwise on a password-protected website for classroom use.
Finding Errors on the Work Sheet

If any of the columns on the work sheet do

not balance, you must find the error before
you continue.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Four Tips for Finding Errors on the
Work Sheet

Check the addition of all columns.

Check the addition and subtraction required
when extending to the Adjusted Trial Balance
columns.
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.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
 Learning
Objective 5
Journalize adjusting
entries from the work
sheet.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a
certain product or service or otherwise on a password-protected website for classroom use.
Journalizing Adjusting Entries

The work sheet helps the accountant

organize the end-of-period financial
information, including adjusting entries.

The accounts are not adjusted until a

general journal entry is made and posted to
the general ledger accounts.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Journalizing Adjusting Entries from the
Work Sheet

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
 ADJUSTING ENTRIES
DATE DESCRIPTION PR DEBIT CREDIT
1 Adjusting Entries
2
3
4
Instead of an explanation after
5
each adjusting entry,
6 “Adjusting Entries” is
7 written before the first
8 adjusting entry.
9
10
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ADJUSTING ENTRIES
DATE DESCRIPTION PR DEBIT CREDIT
1 Adjusting Entries
20--
2 June 30
3
4
5
Each adjusting entry is dated
6 the last day of the accounting
7 period.
8
9
10
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ADJUSTING ENTRIES
DATE DESCRIPTION PR DEBIT CREDIT
1 Adjusting Entries
20--
2 June 30 Supplies Expense 60 00
3 Supplies 60 00
4
5 30 Insurance Expense 25 00
6 Prepaid Insurance 25 00
7
8 30 Wages Expense 50 00
9 Wages Payable 50 00
10
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 ADJUSTING ENTRIES
DATE DESCRIPTION PR DEBIT CREDIT
1 Adjusting Entries (cont.)
20--
2 June 30 Depr. Exp.—Del. Equip. 100 00
3 Accum. Depr.—Del. Equip. 100 00
4
5
6
7
8
9
10
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 POSTING THE ADJUSTING ENTRIES

Account: Supplies Expense Account No. 523

BALANCE
DATE ITEM PR DR. CR. DR. CR.
20--
June 30 Adjusting

Posting adjusting entries is

the same as posting other entries
except “Adjusting” is written
in the item area.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
 POSTING THE ADJUSTING ENTRIES

Account: Supplies Expense Account No. 523

BALANCE
DATE ITEM PR DR. CR. DR. CR.
20--
June 30 Adjusting 60 60

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otherwise on a password-protected website for classroom use.
 Learning
Objective 6
Explain the cash,
modified cash, and accrual
bases of accounting.

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certain product or service or otherwise on a password-protected website for classroom use.
Accrual Basis of Accounting

Revenues are recorded when EARNED

Expenses are recorded when INCURRED
Recognizes receivables and payables
Offers the best matching of revenues and
expenses
The best method of measuring income for
most businesses
Smaller service organizations often use the
cash or modified cash basis
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distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Cash Basis of Accounting

Revenues are recorded when cash is

RECEIVED
Expenses are recorded when cash is PAID
Similar to the accrual basis if:
There are few receivables, payables, and
assets
Can vary significantly if:
A business has many receivables, payables,
and assets
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.