Chapter 4
The Accounting Cycle
Continued
© 2010 Prentice Hall Business
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Practical Approach, 11e by Slater
Learning Objective 1
Adjustments: prepaid rent, office supplies,
depreciation on equipment, and accrued
salaries
LO-1
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Practical Approach, 11e by Slater
Steps in Accounting Cycle
Business
transactions
occur
Analyze and
record
transactions in
journal
Prepare
Financial
Statements
Post information
from journal to
ledger
Prepare a
Worksheet
LO-1
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
Preparing a Worksheet



What is it?
◦ A columnar device used to aid accountants in
completing the accounting cycle
◦ Internal document – not a formal financial statement
Why is it prepared?
◦ Used to organize and check data for errors before
preparing financial statements
Has 5 sections
◦
◦
◦
◦
◦
Trial Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
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Practical Approach, 11e by Slater
LO-1
Adjusting Entries
Internal transactions
 Bring accounts up-to-date
 Recognize revenues and expenses in the
proper accounting period

LO-1
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Practical Approach, 11e by Slater
Items that Need to be Adjusted
Office Supplies
 Prepaid Items (Rent, Advertising)
 Equipment (Depreciation, Accumulated
Depreciation)
 Expenses (Salaries, Rent, Supplies)

LO-1
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Practical Approach, 11e by Slater
Examples of Prepaid Adjustments
Prepaid Rent at beginning of month =
$3,000 (covers 6 months)
 End of month 1adjustment of $500 =
($3,000/6 months)

Rent Expense
Prepaid Rent
500
Debit
3,000
500
Credit
LO-1
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
Examples
of
Adjustments
 Supplies on hand at the beginning of month =
$4,000
 Supplies on hand at the end of month = $1,200
 Calculate the difference between the beginning
and ending balances
$4,000 - $1,200 = $2,800- Supplies used
Supplies Expense
2800
Debit
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Supplies
4,000 2800
Credit
LO-1
Adjusting for Items
Jan 5 Purchased supplies for $800
800
Jan 20 Purchased supplies for $600
600
Supplies
1,400
Supplies available
for use during January
LO-1
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Adjusting for Items
Jan 31 Supplies on hand, $300
Supplies available $1,400
Supplies on hand
300
1,100
Supplies used
$1,100
1,100
Supplies
800 1,100
600
1,400
300
Supplies Expense
1,100
________
1,100
LO-1
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
Adjusting for Long-Term Assets
Depreciation – Allocating the cost of the
asset over its useful life
 Straight-line depreciation

Cost – Residual Value
Estimated Years of Usefulness
LO-1
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Examples
of Adjustments
 Company bought a piece of equipment that has a cost

of $50,000, no residual value and a useful life of 10 years
Formula for calculating depreciation:
(Cost – Residual Value) ÷ Est. Usefulness in Months
($50,000 – 0) ÷ 120 (10 x 12) = $417
Depreciation Expense
417
Debit
Accumulated Depreciation
417
Credit
LO-1
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Practical Approach, 11e by Slater
Adjusting for Long-Term Assets
Jan 1 Purchased equipment for $14,000. It is
estimated that the equipment will be used for 5
years, at which time it will be worth $800.
Equipment
14,000
LO-1
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Adjusting for Long-Term Assets
Determine depreciation for the month of January.
Cost – Residual Value
Estimated Years of Usefulness
$14,000 – 800
5 years
= $2,640
For one year: $2,640 / 12 months = $220
LO-1
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Adjusting for Long-Term Assets
Equipment
14,000
Depreciation for one month:
$2,640 / 12 months = $220
Accumulated Depreciation,
Equipment
220
Depreciation Expense,
Equipment
220
LO-1
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Practical Approach, 11e by Slater
Adjusting for Long-Term Assets
Depreciation Expense,
Equipment
220
Expense shown on
income statement
LO-1
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Adjusting for Long-Term Assets
Balance Sheet
January 31, 200X
Assets
Cash
Equipment
Less accumulated
depreciation
$14,000
220
Book Value:
Unused amount to
be depreciated in
future periods
13,780
Historical cost of $14,000
does not change
LO-1
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Adjusting for Long-Term Assets
Accumulated Depreciation,
Equipment
220
•Contra asset account
•Shown on Balance Sheet
•Accumulates depreciation
recognized over entire life of asset
LO-1
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Adjusting for Long-Term Assets
Balance Sheet
February 28, 200X
Assets
Cash
……..
Equipment
Less accumulated
depreciation
Book Value
$xxxx
decreases
xxxx
$14,000
440
13,560
Increases each
accounting period
LO-1
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Adjusting for Accrued Expenses
Employee salaries are $100 a day for a five
day work week which runs from Monday
thru Friday. Employees are paid every
Friday.
JANUARY
S
M
T
W
T
F
S
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Salaries Paid (Cash)
Jan 5
Jan 12
Jan 19
Jan 26
500
500
500
500
LO-1
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Adjusting for Accrued Expenses
Employees worked 3 days more in January,
but have not yet been paid.
JANUARY
S
M
T
W
T
F
S
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Salaries Expense
Jan 5
Jan 12
Jan 19
Jan 26
Jan 31
500
500
500
500
300
LO-1
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Adjusting for Accrued Expenses
Employees worked 3 days more in January,
but will not be paid until February 2.
3 days X $100 = $300
Salaries Expense
Salaries Payable
300 Jan 31
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Jan 5
Jan 12
Jan 19
Jan 26
Jan 31
500
500
500
500
300
2,300
LO-1
Learning Objective 2
Preparing the adjusted trial balance on the
worksheet
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Problem 4B-3

We will use Problem 4B-3 to apply the
concepts presented in the chapter.
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Worksheet – Problem 4B-3
Account Titles
Cash
Prepaid Insurance
Moving Supplies
Moving Truck
Accum Depr, Truck
Accounts Payable
K. Hoff, Capital
K. Hoff, Withdrawals
Revenue From Moving
Wages Expense
Rent Expense
Advertising Expense
Totals
Trial Balance
Dr.
Cr.
3,920
3,288
1,400
10,658
3,660
1,312
17,482
4,240
8,162
5,712
1,080
318
30,616
30,616
Kevin's Moving Co.
Worksheet
October 31, 200X
Adjustments
Adjusted T/B
Dr.
Cr.
Dr.
Cr.
Income Statement Balance Sheet
Dr.
Cr.
Dr.
Cr.
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
a. Insurance expired, $600
Prepaid Insurance
3,288
600
Insurance Expense
600
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Account Titles
Cash
Prepaid Insurance
Moving Supplies
Moving Truck
Accum Depr, Truck
Accounts Payable
K. Hoff, Capital
K. Hoff, Withdraw
Revenue-Moving
Wages Exp
Rent Exp
Advertising Exp
Totals
Insurance Exp
Trial Balance
Dr.
Cr.
3,920
3,288
1,400
10,658
3,660
1,312
17,482
4,240
8,162
5,712
1,080
318
30,616
30,616
Kevin's Moving Co.
Worksheet
October 31, 200X
Adjustments
Adjusted
Dr.
Cr.
Dr.
a. 600
a. 600
LO-2
© 2010 Prentice Hall Business
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Practical Approach, 11e by Slater
b. Moving supplies on hand, $310
Moving Supplies
?
1,400
1,090
Moving Supplies
Expense
1,090
310
Take $1,400 - $310
on hand
to arrive at $1,090
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Account Titles
Cash
Prepaid Insurance
Moving Supplies
Moving Truck
Accum Depr, Truck
Accounts Payable
K. Hoff, Capital
K. Hoff, Withdraw
Revenue-Moving
Wages Exp
Rent Exp
Advertising Exp
Totals
Insurance Exp
Mov Supp Exp
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Trial Balance
Dr.
Cr.
3,920
3,288
1,400
10,658
3,660
1,312
17,482
4,240
8,162
5,712
1,080
318
30,616
30,616
Kevin's Moving Co.
Worksheet
October 31, 200X
Adjustments
Adjusted T
Dr.
Cr.
Dr.
a. 600
b. 1,090
a. 600
b. 1,090
LO-2
c. Depreciation on truck, $580
Depreciation Expense,
Truck
580
Accumulated Depreciation,
Moving Truck
3,660
580
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Account Titles
Cash
Prepaid Insurance
Moving Supplies
Moving Truck
Accum Depr, Truck
Accounts Payable
K. Hoff, Capital
K. Hoff, Withdraw
Revenue-Moving
Wages Exp
Rent Exp
Advertising Exp
Totals
Insurance Exp
Mov Supp Exp
Depr Exp,Truck
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Trial Balance
Dr.
Cr.
3,920
3,288
1,400
10,658
3,660
1,312
17,482
4,240
8,162
5,712
1,080
318
30,616
30,616
Kevin's Moving Co.
Worksheet
October 31, 200X
Adjustments
Adjusted T
Dr.
Cr.
Dr.
a. 600
b. 1,090
c.
580
a. 600
b. 1,090
c. 580
LO-2
d. Wages earned but unpaid, $410
Wages Expense
5,712
410
Salaries Payable
410
LO-2
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Account Titles
Cash
Prepaid Insurance
Moving Supplies
Moving Truck
Accum Depr, Truck
Accounts Payable
K. Hoff, Capital
K. Hoff, Withdraw
Revenue-Moving
Wages Exp
Rent Exp
Advertising Exp
Totals
Insurance Exp
Mov Supp Exp
Depr Exp,Truck
Wages Payable
Totals
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Trial Balance
Dr.
Cr.
3,920
3,288
1,400
10,658
3,660
1,312
17,482
4,240
8,162
5,712
1,080
318
30,616
30,616
Kevin's Moving Co.
Worksheet
October 31, 200X
Adjustments
Adjusted T
Dr.
Cr.
Dr.
a. 600
b. 1,090
c.
d.
580
410
a. 600
b. 1,090
c. 580
2,680
d. 410
2,680
LO-2
Account Titles
Cash
Prepaid Ins
Moving Supplies
Moving Truck
Accum Depr, Trk
Accounts Payable
K. Hoff, Capital
K. Hoff, Withdraw
Revenue-Moving
Wages Exp
Rent Exp
Advertising Exp
Totals
Insurance Exp
Mov. Supp. Exp
Depr Exp, Truck
Wages Payable
Totals
Trial Balance
Dr.
Cr.
3,920
3,288
1,400
10,658
3,660
1,312
17,482
4,240
8,162
5,712
1,080
318
30,616
30,616
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Worksheet
October 31, 200X
Adjustments
Adjusted T/B
Dr.
Cr.
Dr.
Cr.
3,920
a.
600
2,688
b. 1,090
310
10,658
c.
580
4,240
1,312
17,482
4,240
8,162
d.
410
6,122
1,080
318
a.
b.
c.
600
1,090
580
600
1,090
580
d.
2,680
410
2,680
31,606
410
31,606
LO-2
In
Learning Objective 3
Preparing the income statement and
balance sheet sections of the worksheet
LO-3
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Account Titles
Cash
Prepaid Ins
Moving Supplies
Moving Truck
Accum Depr, Trk
Accounts Payable
K. Hoff, Capital
K. Hoff, Withdraw
Revenue-Moving
Wages Exp
Rent Exp
Advertising Exp
Totals
Insurance Exp
Mov. Supp. Exp
Depr Exp, Truck
Wages Payable
Totals
Worksheet
October 31, 200X
Adjusted T/B
Income Statement
Balance Sheet
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
3,920
2,688
310
10,658
4,240
Balance Sheet
1,312
Accounts
17,482
4,240
8,162
6,122
1,080
Income Statement
318
Accounts
600
1,090
580
31,606
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Practical Approach, 11e by Slater
410
31,606
Balance Sheet
Account
LO-3
Worksheet
October 31, 200X
Adjusted T/B
Income Statement
Account Titles
Dr.
Cr.
Dr.
Cr.
Cash
3,920
Prepaid Ins
2,688
Moving Supplies
310 Balance Sheet
Moving Truck
10,658
Accounts
Accum Depr, Trk
4,240
Accounts Payable
1,312
K. Hoff, Capital
17,482
K. Hoff, Withdraw
4,240
Revenue-Moving
8,162
8,162
Wages Exp
6,122
6,122
Rent Exp
1,080
1,080
Income
Statement
Advertising Exp
318
318
Accounts
Totals
Insurance Exp
600
600
Mov. Supp. Exp
1,090
1,090
Depr Exp, Truck
580
580
Balance
Sheet
Wages Payable
410
Account
Totals
31,606
31,606
Balance Sheet
Dr.
Cr.
3,920
2,688
310
10,658
4,240
1,312
17,482
4,240
410
LO-3
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Account Titles
Cash
Prepaid Ins
Moving Supplies
Moving Truck
Accum Depr, Trk
Accounts Payable
K. Hoff, Capital
K. Hoff, Withdraw
Revenue-Moving
Wages Exp
Rent Exp
Advertising Exp
Totals
Insurance Exp
Mov. Supp. Exp
Depr Exp, Truck
Wages Payable
Totals
Worksheet
October 31, 200X
Adjusted T/B
Income Statement
Dr.
Cr.
Dr.
Cr.
3,920
2,688
310
10,658
4,240
1,312
17,482
4,240
8,162
8,162
6,122
6,122
1,080
1,080
318
318
600
1,090
580
31,606
600
1,090
580
410
31,606
410
9,790
Net Loss
9,790
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Balance Sheet
Dr.
Cr.
3,920
2,688
310
10,658
4,240
1,312
17,482
4,240
8,162
1,628
9,790
21,816
1,628
23,444
23,444
23,444
LO-3
Learning Objective 4
Preparing financial statements from the
worksheet
LO-4
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Kevin’s Moving Company
Income Statement
For Month Ended October, 200X
Revenue:
Revenue from Moving
Operating Expenses:
Wages Expense
Moving Supplies Expense
Rent Expense
Insurance Expense
Depreciation Expense, Truck
Advertising Expense
Total Operating Expenses
Net Loss
$8,162
$6,122
1,090
1,080
600
580
318
9,790
($1,628)
LO-4
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Kevin’s Moving Company
Statement of Owner’s Equity
For Month Ended October 31, 200X
K. Hoff, Capital, October 1, 200X
Net Loss for October
Less:
Withdrawals for October
Decrease in Capital
K. Hoff, Capital, October 31, 200X
$17,482
($1,628)
4,240
(5,868)
$11,614
LO-4
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Kevin’s Moving Company
Balance Sheet
October 31, 200X
Assets
Liabilities & Owner’s Equity
Cash
$3,920 Liabilities:
Prepaid Insurance
2,688 Accounts Payable $1,312
Moving Supplies
310 Wages Payable
410
Moving Truck
$10,658
Total Liabilities
$1,722
Less: Accumulated
Owner’s Equity
Depreciation
4,240 6,418 K. Hoff, Capital
11,614
Total Liabilities &
Total Assets
$13,336 Owner’s Equity
$13,336
LO-4
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
End of Chapter 4
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater