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Adjusting Entries and the Work Sheet Chapter 5 Adjusting Entries and 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. Learning Objective 1 Prepare end-of-period adjustments. © 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. 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. © 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. 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. © 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. 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 © 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. 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 © 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 2 Post adjusting entries to the general ledger. © 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 Let’s look at some adjusting entries for Damon’s Campus Delivery. © 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. Supplies During June, Damon purchased supplies for $80. These were debited to the supplies account. SUPPLIES PURCHASED TB IN JUNE 80 © 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. 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. © 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. 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. © 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. Supplies (cont.) During June, Damon purchased supplies for $80. These were debited to the supplies account. SUPPLIES TB 80 ADJUSTING ENTRY Bal. 80 NEEDED!!!! © 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. Supplies (cont.) SUPPLIES TB 80 Bal. 80 $80 Purchased during month 20 Supplies remaining – $60 Supplies used © 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. Supplies (cont.) SUPPLIES TB 80 $60 is credited to Supplies to remove Bal. 80 the amount of Adj. 60 supplies used during June. © 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. 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. © 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. Supplies (cont.) SUPPLIES SUPPLIES EXPENSE TB 80 Adj. 60 Bal. 80 Adj. 60 Bal. 20 Now the balance sheet will show $20 of supplies! © 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. 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. © 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. 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 © 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. 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. © 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. Prepaid Insurance (cont.) PREPAID INSURANCE TB 200 $200 for 8 months: $200 ÷ 8 = $25 per month © 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. Prepaid Insurance (cont.) PREPAID INSURANCE TB 200 Adj. 25 Prepaid Insurance is credited for $25 to remove June’s insurance coverage that has expired. © 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. 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. © 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. 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! © 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.
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