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Homework assignment • Using Connect – LS 20 Points, Quiz 20 Points, and EX. 60 Points. • Prepare chapter 5 “Adjustments and the Worksheet. ” Happiness is having all homework up to date Atef Abuelaish 4
Chapter 05 Adjustments and
Chapter 05 Adjustments and the Worksheet Section 1: The Worksheet
1) Complete a trial balance on a worksheet. The worksheet has an Account Name column The worksheet also has five sections Each section has two columns Wells’ Consulting Services Worksheet Month Ended December 31, 2016 TRIAL BALANCE ACCOUNT NAME DEBIT CREDIT ADJUSTMENTS DEBIT CREDIT ADJ. TRIAL BAL. INCOME STMT. DEBIT CREDIT BALANCE SHEET DEBIT CREDIT 5 -7
Complete the Trial Balance section in four steps: 1. Enter the general ledger account names. 2. Transfer the general ledger account balances to the Debit and Credit columns of the Trial Balance section. 3. Total the Debit and Credit columns to prove that the trial balance is in balance. 4. Place a double rule under each Trial Balance column to show that the work in that column is complete. 5 -8
Step 1: Enter the general ledger account names. Wells’ Consulting Services Step 1: Enter the general ledger account names. Worksheet Month Ended December 31, 2016 TRIAL BALANCE ACCOUNT NAME DEBIT Cash ADJUSTMENTS ADJ. TRIAL BAL. Carter Consulting Service CREDIT DEBIT Worksheet Month Ended December 31, 2004 CREDIT INCOME STMT. BALANCE SHEET DEBIT CREDIT Accounts Receivable Supplies ACCOUNT NAME Prepaid Rent Equipment Cas TRIAL BALANCE DEBIT Accum. h Depr. —Equip. Accounts Payable Carolyn Wells, Cap. CREDIT ADJUSTMENTS DEBIT CREDIT ADJ. TRIAL BAL. DEBIT CREDIT INCOME STATEMENT BALANCE SHEET DEBIT CREDIT These four new accounts will be used for the adjustments. Carolyn Wells, Draw. Fees Income Salaries Expense Utilities Expense Supplies Expense Rent Expense Depr. Exp. —Equip. Totals **If additional new expense accounts are needed in the adjustment process, add them to the bottom of the ACCOUNT 5 -9
Step 2: Transfer the general ledger account balances to the Debit and Credit columns of the Trial Balance section. Wells’ Consulting Services Worksheet Month Ended December 31, 2016 TRIAL BALANCE ACCOUNT NAME Cash DEBIT CREDIT ADJUSTMENTS ADJ. TRIAL BAL. DEBIT CREDIT INCOME STMT. DEBIT CREDIT BALANCE SHEET DEBIT CREDIT 111, 350 Accounts Rec. Supplies 101 Cash ACCOUNT ______________ ACCOUNT NO. ____ Prepaid Rent Equipment Accum. Depr. BALANCE DATE DESCRIPTION POST REF. CREDIT 2016 Nov. 30 Bal. forward DEBIT CREDIT 64, 400 87, 000 Accounts Pay. Dec. 31 J 2 C. Wells, Cap. Dec. 31 J 2 C. Wells, Draw. DEBIT 36, 00 0 2, 000 123, 000 125, 000 8, 000 117, 000 J 2 650 116, 350 J 2 5, 000 111, 350 Dec. 31 J 2 Dec. 31 5 -10
Step 3: Total the Debit and Credit columns to prove that the trial balance is in balance. ACCOUNT NAME Cash TRIAL BALANCE ADJUSTMENTS DEBIT 5, 000 Supplies 1, 500 Prepaid Rent 8, 000 11, 000 DEBIT CREDIT 100, 000 Carolyn Wells, Cap. 5, 000 Fees Income Utilities Expense DEBIT 3, 500 Accounts Payable Salaries Expense BALANCE SHEET Step 4: Place a double rule under each Trial Balance column to show that the work in that column is complete. Accum. Depr. —Equip. Carolyn Wells, Draw. CREDIT INCOME STMT. 111, 350 Accounts Receivable Equipment CREDIT ADJ. TRIAL BAL. 47, 000 8, 000 650 Supplies Expense Rent Expense Depr. Exp. —Equip. Totals 150, 500 5 -11
2) Prepare adjustments for unrecorded business transactions. ACCOUNT NAME Cash TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT 5, 000 Supplies 1, 500 Equipment CREDIT 111, 350 Accounts Receivable Prepaid Rent CREDIT 8, 000 11, 000 Accum. Depr. —Equip. 3, 500 Accounts Payable Carolyn Wells, Cap. Carolyn Wells, Draw. 100, 000 5, 000 Fees Income Salaries Expense Utilities Expense 47, 000 8, 000 650 Supplies Expense Adjusting entries are first entered in the Adjustments section of the worksheet Rent Expense Depr. Exp. —Equip. Totals 150, 500 5 -12
1) The Supplies Adjustment Wells’ Consulting Services began the month with $1, 500 in supplies. At the end of the month, $1, 000 in supplies remained. QUESTION: What dollar amount of supplies was used during the month? $1, 500 - 1, 000 ANSWER: $500 5 -13
Wells’ Consulting Services Worksheet Month Ended December 31, 2016 ACCOUNT NAME Cash TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT 5, 000 Supplies 1, 500 Equipment CREDIT 111, 350 Accounts Receivable Prepaid Rent CREDIT (a) 500 8, 000 11, 000 Accum. Depr. —Equip. 3, 500 Accounts Payable Carolyn Wells, Cap. Carolyn Wells, Draw. 100, 000 5, 000 Fees Income Salaries Expense Utilities Expense 47, 000 8, 000 650 Supplies Expense (a) 500 Rent Expense Depr. Exp. —Equip. Totals 150, 500 5 -14
2) The Prepaid Adjustment On November 20, 2016, Wells’ Consulting Services paid $8, 000 for the December and January rent. As of December 31, 2016, one month’s rent had already been used up. QUESTION: What dollar amount of rent was used during the month of December? $8, 000 - 4, 000 ANSWER: $4, 000 5 -15
Wells’ Consulting Services Worksheet Month Ended December 31, 2016 ACCOUNT NAME Cash TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT 5, 000 Supplies 1, 500 Equipment CREDIT 111, 350 Accounts Receivable Prepaid Rent CREDIT (a) 8, 000 11, 000 (b) 500 4, 000 Accum. Depr. —Equip. 3, 500 Accounts Payable Carolyn Wells, Cap. Carolyn Wells, Draw. 100, 000 5, 000 Fees Income Salaries Expense Utilities Expense 47, 000 8, 000 650 Supplies Expense (a) Rent Expense (b) 500 4, 000 Depr. Exp. —Equip. Totals 150, 500 5 -16
3) Depreciation The cost is recorded as an asset and charged to expense over the time the asset is used for the business. Asset Pie Expense De 20 c. 13 This expense is called depreciation b. Fe 4 1 20 Expense Jan. 2014 Expense 5 -17
There are several methods to calculate depreciation. Wells’ Consulting Services uses the straight-line method. QUESTION: What is straight-line depreciation? ANSWER: Straight-line depreciation (S/L) allocates an asset’s cost in equal amounts to each accounting period of its useful life. S/L depreciation = Cost - salvage value Estimated months of useful life 5 -18
Calculating Depreciation Wells’ Consulting Services purchased equipment in November, 2016. · Cost = $11, 000 · Useful life = 5 yrs or 60 months (5 yrs x 12 months) · Salvage value = $0 QUESTION: QUESTION What dollar amount of depreciation expense should be recorded for the month? Cost - salvage value Estimated months of useful life ANSWER: $11, 000 - $0 60 months $183/M 5 -19
Adjustment for Depreciation Instead of decreasing the asset account directly, the adjustment for depreciation is recorded in a contra account named Accumulated Depreciation—Equipment + Asset account has a normal debit balance Accumulated Depreciation— Equipment + Contra asset account has a normal credit balance 5 -20
Book Value Equipment Accumulated Depreciation— Equipment 11, 000 183 Original cost of equipment Record of all depreciation taken on equipment Book value = Original cost – Accumulated depreciation = 11, 000 – 183 = 10, 817 5 -21
Wells’ Consulting Services Worksheet Month Ended December 31, 2016 ACCOUNT NAME Cash TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT 5, 000 Supplies 1, 500 Equipment (a) 8, 000 11, 000 (b) Accum. Depr. —Equip. 183 When all adjustments are entered, total and rule the Adjustments columns. 5, 000 47, 000 8, 000 650 Supplies Expense (a) Rent Expense (b) Depr. Exp. —Equip. Totals CREDIT 500 100, 000 Fees Income Utilities Expense CREDIT 3, 500 Carolyn Wells, Cap. Salaries Expense CREDIT 4, 000 (c) Accounts Payable Carolyn Wells, Draw. CREDIT 111, 350 Accounts Receivable Prepaid Rent CREDIT 4, 000 (c) 150, 500 500 183 4, 683 5 -22
Chapter 05 Adjustments and the Worksheet Section 2: Financial Statements
The Accounting Cycle Step 1 Analyze and transactions classify transactions Step 2 Journalize the transactions data about transactions Step 3 Post transactions to the ledger Step 4 Prepare a worksheet Step 5 Prepare financial statements Step 9 Evaluate and communicate financial information Step 8 Prepare a postclosing trial balance Step 7 Journalize closing entries Step 6 Journnalize adjusting entries 4 -24
3) Complete the worksheet. You have already seen how to prepare the first two sections of a worksheet: l Trial Balance l Adjustments You will now learn how to complete a worksheet. Preparing a worksheet is the fourth step of the accounting cycle. 5 -25
Step 1: Combine the figures from the Trial Balance section and the Adjustments section. Record the results in the Adjusted Trial Balance columns. ACCOUNT NAME TRIAL BALANCE DEBIT Cash ADJ. TRIAL BAL. DEBIT CREDIT 5, 000 Supplies 1, 500 Prepaid Rent 8, 000 (a) (b) CREDIT 4, 000 183 100, 000 5, 000 Fees Income 47, 000 8, 000 650 Supplies Expense (a) Rent Expense (b) Depr. Exp. —Equip. Totals DEBIT CREDIT 3, 500 Carolyn Wells, Cap. Utilities Expense DEBIT 500 (c) Accounts Payable Salaries Expense BALANCE SHEET 11, 000 Accum. Depr. —Equip. Carolyn Wells, Draw. CREDIT INCOME STMT. 111, 350 Accounts Receivable Equipment CREDIT ADJUSTMENTS 4, 000 (c) 150, 500 500 183 4, 683 5 -26
The accounts that do not have adjustments are extended from the Trial Balance section to the Adjusted Trial Balance section. ACCOUNT NAME Cash TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT CREDIT 5, 000 Supplies 1, 500 (a) Prepaid Rent 8, 000 (b) Carolyn Wells, Draw. 500 4, 000 11, 000 Accum. Depr. —Equip. (c) Carolyn Wells, Cap. 183 3, 500 100, 000 5, 000 Fees Income 5, 000 47, 000 Salaries Expense 8, 000 Utilities Expense 650 Supplies Expense (a) 500 Rent Expense (b) 4, 000 Depr. Exp. —Equip. (c) 183 Totals CREDIT 5, 000 11, 000 Accounts Payable CREDIT 111, 350 Accounts Receivable Equipment CREDIT 150, 500 4, 683 5 -27
The Supplies account has a $1, 500 debit balance in the Trial Balance section and a $500 credit in the Adjustments section. ($1, 500 debit and $500 credit = $1, 000) ACCOUNT NAME Cash TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT 5, 000 Supplies 1, 500 Equipment CREDIT Carolyn Wells, Draw. Utilities Expense (b) 4, 000 11, 000 183 CREDIT 183 3, 500 100, 000 5, 000 47, 000 8, 000 650 Supplies Expense (a) 500 Rent Expense (b) 4, 000 Depr. Exp. —Equip. (c) 183 Totals 1, 000 (c) Fees Income Salaries Expense 500 (a) Accum. Depr. —Equip. Carolyn Wells, Cap. CREDIT 5, 000 8, 000 11, 000 Accounts Payable CREDIT 111, 350 Accounts Receivable Prepaid Rent CREDIT 150, 500 4, 683 500 4, 000 183 4, 683 5 -28
Step 2: Total the Debit and Credit columns in the Adjusted Trial Balance section. Confirm that debits equal credits. ACCOUNT NAME Cash TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT CREDIT 5, 000 Supplies 1, 500 (a) Prepaid Rent 8, 000 (b) Accum. Depr. —Equip. Carolyn Wells, Draw. Utilities Expense 4, 000 11, 000 183 3, 500 100, 000 5, 000 47, 000 8, 000 650 Supplies Expense 8, 000 650 500 4, 000 4000 183 4, 683 183 (a) Rent Expense (b) Depr. Exp. —Equip. Totals 1, 000 3, 500 Fees Income Salaries Expense 500 (c) Carolyn Wells, Cap. CREDIT 5, 000 11, 000 Accounts Payable CREDIT 111, 350 Accounts Receivable Equipment CREDIT (c) 150, 500 4, 683 150, 683 5 -29
For accounts that appear on the balance sheet, enter the amount in the appropriate column of the Balance Sheet section. For accounts that appear on the income statement, enter the amount in the appropriate column of the Income Statement section. ACCOUNT NAME Cash TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT CREDIT 5, 000 Supplies 1, 500 (a) 8, 000 11, 000 (b) Equipment Carolyn Wells, Draw. Utilities Expense 1, 000 4, 000 11, 000 183 3, 500 100, 000 5, 000 Fees Income Salaries Expense 500 (c) Carolyn Wells, Cap. 5, 000 47, 000 8, 000 650 Supplies Expense 8, 000 650 (a) 500 Rent Expense (b) 4, 000 4000 Depr. Exp. —Equip. (c) 183 4, 683 150, 683 Totals CREDIT 5, 000 Accum. Depr. —Equip. Accounts Payable CREDIT 111, 350 Accounts Receivable Prepaid Rent CREDIT 150, 500 5 -30
After all the account balances are transferred to the financial statement sections, total the Debit and Credit columns. ACCOUNT NAME Cash TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT CREDIT 5, 000 Supplies 1, 500 (a) Prepaid Rent 8, 000 (b) Equipment 500 1, 000 4, 000 11, 000 4, 000 183 5, 000 100, 000 (a) 47, 000 8, 000 650 500 500 4, 000 Rent Expense (b) 4, 000 4000 Depr. Exp. —Equip. (c) 183 150, 500 5, 000 47, 000 8, 000 650 Supplies Expense Totals 3, 500 183 3, 500 5, 000 47, 000 4, 683 CREDIT 11, 000 183 100, 000 Fees Income Utilities Expense 5, 000 3, 500 Carolyn Wells, Cap. Salaries Expense 5, 000 (c) Accounts Payable Carolyn Wells, Draw. 111, 350 11, 000 Accum. Depr. —Equip. CREDIT 111, 350 Accounts Receivable CREDIT 183 4, 683 150, 683 13, 333 47, 000 137, 350 103, 683 5 -31
Subtract the smaller total from the larger total in the Income Statement section to find the Net Income or Net Loss. ACCOUNT NAME TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT CREDIT CREDIT 111, 350 Cash 111, 350 Accounts Receivable 5, 000 Supplies 1, 000 1, 500 (a) 500 4, 000 Prepaid Rent 4, 000 8, 000 (b) 4, 000 11, 000 Equipment 183 (c) 183 Accum. Depr. —Equip. 183 3, 500 Accounts Payable Carolyn Wells, Cap. 100, 000 Carolyn Wells, Draw. 5, 000 Fees Income 47, 000 Salaries Expense 8, 000 650 650 Utilities Expense (a) 500 Supplies Expense 500 4, 000 Rent Expense 4000 (b) 4, 000 Depr. Exp. —Equip. (c) 183 183 Totals 150, 500 4, 683 150, 683 13, 333 47, 000 137, 350103, 683 Net Income 5 -32
If the credit total is more than the debit total, the firm has net income. . . Enter the amount on the Net Income line. (47, 000 – 13, 333 = 33, 667) ACCOUNT NAME TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT CREDIT CREDIT 111, 350 Cash 111, 350 Accounts Receivable 5, 000 Supplies 1, 000 1, 500 (a) 500 4, 000 Prepaid Rent 4, 000 8, 000 (b) 4, 000 11, 000 Equipment 183 (c) 183 Accum. Depr. —Equip. 183 3, 500 Accounts Payable Carolyn Wells, Cap. 100, 000 Carolyn Wells, Draw. 5, 000 Fees Income 47, 000 Salaries Expense 8, 000 650 650 Utilities Expense (a) 500 Supplies Expense 500 4, 000 Rent Expense 4000 (b) 4, 000 Depr. Exp. —Equip. (c) 183 183 Totals 150, 500 4, 683 150, 683 13, 333 47, 000 137, 350103, 683 Net Income 33, 667 5 -33
Total the Income Statement and the Balance Sheet sections. ACCOUNT NAME TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET DEBIT DEBIT CREDIT CREDIT 111, 350 Cash 111, 350 Accounts Receivable 5, 000 Supplies 1, 000 1, 500 (a) 500 4, 000 Prepaid Rent 4, 000 8, 000 (b) 4, 000 11, 000 Equipment 183 (c) 183 Accum. Depr. —Equip. 183 3, 500 Accounts Payable Carolyn Wells, Cap. 100, 000 Carolyn Wells, Draw. 5, 000 Fees Income 47, 000 Salaries Expense 8, 000 650 650 Utilities Expense (a) 500 Supplies Expense 500 4, 000 Rent Expense 4000 (b) 4, 000 Depr. Exp. —Equip. (c) 183 183 Totals 150, 500 4, 683 150, 683 13, 333 47, 000 137, 350 103, 683 Net Income 33, 667 47, 000 137, 350 5 -34
The Accounting Cycle Step 1 Analyze and transactions classify transactions Step 2 Journalize the transactions data about transactions Step 3 Post transactions to the ledger Step 4 Prepare a worksheet Step 5 Prepare financial statements Step 9 Evaluate and communicate financial information Step 8 Prepare a postclosing trial balance Step 7 Journalize closing entries Step 6 Journnalize adjusting entries 4 -35
4) Prepare financial statements from the worksheet. Wells’ Consulting Services Income Statement Month Ended December 31, 2016 Revenue Fees Income $47, 000 Expenses Salaries Expense $8, 000 Utilities 650 Supplies Expense 500 Rent Expense Depreciation Expense - Equipment Total Expenses Net Income for the Month 4, 000 183 $13, 333 $33, 667 5 -36
Wells’ Consulting Services Statement of Owner’s Equity Month Ended December 31, 2016 Carolyn Wells, Capital, December 1, 2016 Net Income for December Less Withdrawals for December Increase in Capital Carolyn Wells, Capital, December 31, 2016 $ 100, 000 $33, 667 5, 000 28, 667 $128, 667 5 -37
Account Form of Balance Sheet Wells’ Consulting Services Balance Sheet December 31, 2016 Assets Cash $111, 350. 00 Accounts Receivable 5, 000. 00 Supplies 1, 000. 00 Prepaid Rent 4, 000. 00 Equipment 10, 817. 00 Total Assets $ 132, 167. 00 Liabilities Accounts Payable $ Owner’s Equity Carolyn Wells, Capital Total Liabilities and Owner’s Equity 128, 667. 00 $ 132, 167. 00 3, 500. 00 5 -38
Report Form of Balance Sheet Wells’ Consulting Services Balance Sheet December 31, 2016 Assets Cash $111, 350 Accounts Receivable 5, 000 Supplies 1, 000 Prepaid Rent 4, 000 Equipment Less Accumulated Depreciation Total Assets $11, 000 183 10, 817 $132, 167 Liabilities and Owner’s Equity Liabilities Accounts Payable $ 3, 500 Owner’s Equity Carolyn Wells, Capital Total Liabilities and Owner’s Equity 128, 667 $132, 167 5 -39
5) Journalize and post the adjusting entries. The worksheet is NOT l l A financial statement A permanent part of the accounting records It is only a tool 5 -40
The Accounting Cycle Step 1 Analyze transactions Step 2 Journalize the data about transactions Step 3 Post the data about transactions Step 4 Prepare a worksheet Step 5 Prepare financial statements Step 9 Interpret the financial information Step 8 Prepare a postclosing trial balance Step 7 Record closing entries Step 6 Record adjusting entries 5 -41
QUESTION: QUESTION What adjustments must Wells’ Consulting Services record for the month? ANSWER: (a) Adjustment for supplies used. (b) Adjustment for expired rent. (c) Adjustment for depreciation. 5 -42
GENERAL JOURNAL DATE ACCOUNT DATE 2016 Dec. 31 POST. REF. DESCRIPTION PAGE DEBIT 2016 Adjusting Entries Dec. 31 Supplies Expense Supplies 517 121 500. 00 31 Rent Expense Prepaid Rent 520 137 4000. 00 31 Depr. Expense–Equipment Accum. Depr. –Equipment 523 142 183. 00 Supplies Expense DESCRIPTION Adjusting POST. REF. J 3 3 CREDIT 500. 00 4000. 00 183. 00 ACCOUNT NO. DEBIT 500. 00 CREDIT 517 BALANCE DEBIT CREDIT 500. 00 5 -43
Homework assignment • Using Connect – LS 20 Points, Quiz 20 Points, and EX. 60 Points. • Prepare chapter 6 “Closing Entries and the Postclosing Trial Balance. ” Happiness is having all homework up to date Atef Abuelaish 44
Thank you, and see you, Next Week at the same time
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