Professional Documents
Culture Documents
The Worksheet
4-5
Expected Learning Outcomes
• List the classifications of the accounts that
occupy each column of a ten-column
worksheet
• Complete a worksheet for a service enterprise
• Journalize and post adjusting entries
• Prepare statements from worksheet
Fiscal Period
• Period of time covering a complete accounting cycle
through closing entries
• A day, week, month, whenever you want
• Monthly is normal for comparison purposes
• Fiscal year
– Complete cycle for 12 months
– Need not coincide with calendar year
The 10-Column Worksheet
• Working paper
– Simply a tool used for accounting
– To record necessary updates for financial
statements
• Central place for bringing together
information for adjustments
Ten Column Worksheet
• 10 columns for recording dollar amounts
• 2 columns for each heading (debit/credit)
– Trial balance
– Adjustments
– Adjusted trial balance
– Income Statement
– Balance Sheet
Trial Balance Columns
180 180
4-37
Adjusted Financial Results
Adjustments help to ensure that all revenues and
expenses are reported in the period in which they are
earned and incurred.
4-38
At the end of the
period, we need to
make adjusting entries
to get the accounts up
to date for the financial
statements.
Adjusting Entries
Adjusting Every
entries are adjusting
needed whenever entry involves a
revenue or expenses change in either a
affect more than one revenue or expense
accounting and an asset
period. or liability.
Types of Adjusting Entries
Converting
Converting Converting
Converting
assets
assets to
to liabilities
liabilities to
to
expenses
expenses revenue
revenue
Accruing
Accruing Accruing
Accruing
unpaid
unpaid uncollected
uncollected
expenses
expenses revenues
revenues
Converting Assets to Expenses
End of Current Period
Prior Periods Current Period Future Periods
Transaction
Transaction Adjusting
AdjustingEntry
Entry
Paid
Paidfuture
future Recognize
Recognizeportion
portion
expenses
expensesin in of
ofasset
assetconsumed
consumed
advance
advance
(creates
(createsanan as
asexpense,
expense,and
and
asset).
asset). Reduce
Reducebalance
balanceof
of
asset
asset account.
account.
Converting Assets to Expenses
Examples Include:
Depreciation
Supplies
Expiring Insurance Policies
Converting Assets to Expenses
Jan. 1 Dec. 31
On
On January
January 1,
1, Webb
Webb Co.
Co. purchased
purchased aa one-
one-
year
year insurance
insurance policy
policy for
for $2,400.
$2,400.
Converting Assets to Expenses
Initially,
Initially, costs
costs that
that benefit
benefit more
more than
than one
one
accounting
accounting period
period are
are recorded
recorded as
as assets.
assets.
GENERAL JOURNAL
P
Date Account Titles and Explanation R Debit Credit
Jan. 1 Unexpired Insurance 2,400
Cash 2,400
Purchase a one-year insurance policy.
Converting Assets to Expenses
The
The costs
costs are
are expensed
expensed asas they
they are
are used
used to
to
generate
generate revenue.
revenue.
GENERAL JOURNAL
P
Date Account Titles and Explanation R Debit Credit
Monthly Adjusting Entry for Insurance
Jan. 31 Insurance Expense 200
Unexpired Insurance 200
Insurance expense for January.
Converting Assets to Expenses
Balance
Balance Sheet
Sheet Income
Income Statement
Statement
Cost
Cost of
of assets
assets Cost
Cost of
of assets
assets
that
that benefit
benefit used
used this
this period
period to
to
future
future periods.
periods. generate
generate revenue.
revenue.
Depreciation
Depreciation isis the
the systematic
systematic allocation
allocation
of
of the
the cost
cost of
of aa depreciable
depreciable asset
asset to
to
expense.
expense.
The Concept of Depreciation
The
The portion
portion of
of an
an asset’s
asset’s utility
utility that
that is
is used
used
up
up must
must be
be expensed
expensed inin the
the period
period used.
used.
Fixed
Fixed The asset’s Accumulated
usefulness is Accumulated
Asset
Asset Depreciation
partially Depreciation
(debit)
(debit) (credit)
consumed (credit)
On date during the
period. At end of
when initial
payment is period . . .
made . . . Depreciation
Depreciation
Cash
Cash Expense
Expense
(credit)
(credit) (debit)
(debit)
Depreciation Is Only an Estimate
On May 2, 2003, JJ’s Lawn Care Service
purchased a lawn mower with a useful
life of 50 months for $2,500 cash.
Using the straight-line method, calculate
the monthly depreciation expense.
Depreciation
Cost of the asset
expense (per =
Estimated useful life
period)
$50 = $2,500
50
Depreciation Is Only an Estimate
JJ’s
JJ’s Lawn
Lawn Care
Care Service
Service would
would make
make the
the
following
following adjusting
adjusting entry.
entry.
GENERAL JOURNAL
P
Date Account Titles and Explanation RDebit Credit
May 31 Depreciation Expense: Tools & Eq. 50
Accumulated Depreciation: Tools & Eq. 50
To record one month's depreciation.
Contra-asset
Contra-asset
Depreciation Is Only an Estimate
JJ’s
JJ’s $15,000
$15,000 truck
truck is
is depreciated
depreciated over
over 60
60
months
months as as follows:
follows:
GENERAL JOURNAL
P
Date Account Titles and Explanation R Debit Credit
May 31 Depreciation Expense: Truck 250
Accumulated Depreciation: Truck 250
To record one month's depreciation.
$15,00060
$15,00060 months
months == $250
$250 per
per month
month
Converting Liabilities to Revenue
Balance
Balance Sheet
Sheet Income
Income Statement
Statement
Liability
Liability for
for Revenue
Revenue earned
earned
future
future periods.
periods. this
this period.
period.
Adjusting
AdjustingEntry
Entry Transaction
Transaction
Recognize
Recognizeexpense
expense Liability
Liabilitywill
will
incurred,
incurred,and
and be
bepaid.
paid.
Record
Recordliability
liabilityfor
for
future
futurepayment.
payment.
Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet
P4-1A The trial balance for Undercover Roofing for the month ended March
31, 2008, is as follows.
Trial Balance Other data:
Account Titles Dr. Cr.
Cash $ 2,500 1. Supplies on hand total $140.
Accounts Receivable 1,800 2. Depreciation for March is $200.
Roofing Supplies 1,100
Equipment 6,000 3. Unearned revenue amounted to
Accumulated Depreciation $ 1,200 $130 on March 31.
Accounts Payable 1,400
Unearned Revenue 300 4. Accrued salaries are $350.
I. Spy, Capital 7,000
I. Spy, Drawing 600 Instructions
Service Revenue 3,000
Salaries Expense 700 a. Prepare and complete the
Miscellaneous Expense 200 worksheet.
Totals $ 12,900 $ 12,900
LO 1 Prepare a worksheet.
Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet
1. Prepare a Trial Balance on the Worksheet
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 2,500
Accounts Receivable 1,800
Roofing Supplies 1,100
Equipment 6,000
Accumulated Depreciation 1,200
Accounts Payable 1,400
Unearned Revenue 300
I. Spy, Capital 7,000
I. Spy, Drawing 600
Service Revenue 3,000
Salaries Expense 700
Miscellaneous Expense 200
Totals 12,900 12,900
Trial balance amounts
come directly from ledger
Include all accounts.
accounts with
balances.
LO 1 Prepare a worksheet.
Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet
2. Enter the Adjustments in the Adjustments Columns
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 2,500
Accounts Receivable 1,800
Roofing Supplies 1,100 (a) 960
Equipment 6,000 Adjustments Key:
Accumulated Depreciation 1,200 (b) 200
Accounts Payable 1,400 (a) Supplies used.
Unearned Revenue 300 (c) 170
I. Spy, Capital 7,000
(b) Depreciation expense.
I. Spy, Drawing 600 (c) Service revenue earned.
Service Revenue 3,000 (c) 170
Salaries Expense 700 (d) 350 (d) Salaries accrued.
Miscellaneous Expense 200
Totals 12,900 12,900
Supplies Expense (a) 960
Depreciation Expense (b) 200
Salaries Payable (d) 350
Totals 1,680 1,680 Enter adjustment amounts,
total adjustments columns,
Add additional and check for equality.
accounts as
needed.
LO 1 Prepare a worksheet.
Steps
Steps in
in Preparing
Preparing aa Worksheet
Worksheet
3. Complete the Adjusted Trial Balance Columns
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 2,500 2,500
Accounts Receivable 1,800 1,800
Roofing Supplies 1,100 (a) 960 140
Equipment 6,000 6,000
Accumulated Depreciation 1,200 (b) 200 1,400
Accounts Payable 1,400 1,400
Unearned Revenue 300 (c) 170 130
I. Spy, Capital 7,000 7,000
I. Spy, Drawing 600 600
Service Revenue 3,000 (c) 170 3,170
Salaries Expense 700 (d) 350 1,050
Miscellaneous Expense 200 200
Totals 12,900 12,900
Supplies Expense (a) 960 960
Depreciation Expense (b) 200 200
Salaries Payable (d) 350 350
Totals 1,680 1,680 13,450 13,450
LO 1 Prepare a worksheet.
Preparing
PreparingFinancial
FinancialStatements
Statementsfrom
fromaaWorksheet
Worksheet
Worksheet
Income statement is prepared from the income
statement columns.
LO 1 Prepare a worksheet.
Preparing
PreparingFinancial
FinancialStatements
Statementsfrom
fromaaWorksheet
Worksheet
b. Prepare an income statement for the month ended March 31,
2008.
Undercover Roofing
Income Statement
For the Month Ended March 31, 2008
Revenues $ 3,170
Service revenues
Expenses
Salaries expense $ 1,050
Supplies expense 960
Depreciation expense 200
Miscellaneous expense 200
Total expenses 2,410
Net income $ 760
LO 1 Prepare a worksheet.
Preparing
PreparingFinancial
FinancialStatements
Statementsfrom
fromaaWorksheet
Worksheet
b. Prepare an owner’s equity statement for the month ended March
31, 2008.
Undercover Roofing
Statement of Owner's Equity
For the Month Ended March 31, 2008
I. Spy, Capital, March 1 $ 7,000
Add: Net income 760
Less: Drawings (600)
I. Spy, Capital, March 31 $ 7,160
LO 1 Prepare a worksheet.
Preparing
PreparingFinancial
FinancialStatements
Statementsfrom
fromaaWorksheet
Worksheet
b. Prepare a balance sheet as of March 31, 2008.
Undercover Assets
Current assets
Roofing Cash $ 2,500
Accounts receivable 1,800
Balance Sheet Roofing supplies 140
Total current assets 4,440
March 31, 2008 Property, plant, and equipment
Equipment 6,000
Less: Accumulated depreciation 1,400 4,600
Total assets $ 9,040
LO 1 Prepare a worksheet.
Preparing
PreparingAdjusting
AdjustingEntries
Entriesfrom
fromaaWorksheet
Worksheet
Adjusting Entries
The adjusting entries are prepared from the
adjustments columns of the worksheet.
LO 1 Prepare a worksheet.
Preparing
PreparingFinancial
FinancialStatements
Statementsfrom
fromaaWorksheet
Worksheet
c. Journalize the adjusting entries from the adjustments
columns of the worksheet.
LO 1 Prepare a worksheet.
Summary
1. Identify annual accounting activities that make year-end the “busy
season”
2. Explain the purpose of adjusting entries.
3. Describe and prepare the basic four types of adjusting entries.
4. Explain practically the concept of “materiality”.
5. Explain the concept of adequate disclosure.