College Accounting
A Contemporary Approach
Fourth Edition
Chapter 5
Adjustments and
the Worksheet
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without the prior written consent of McGraw-Hill Education.
Learning Objectives
SECTION 1: The Worksheet
5-1 Complete a trial balance on a worksheet.
5-2 Prepare adjustments for unrecorded
business transactions.
SECTION 2: Financial Statements
5-3 Complete the worksheet.
5-4 Prepare an income statement, statement of
owner's equity, and balance sheet from the
completed worksheet.
5-5 Journalize and post the adjusting entries.
5-6 Define the accounting terms new to this
chapter.
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without the prior written consent of McGraw-Hill Education.
5-2
Section 1: The Worksheet
Learning Objective 5-1:
Complete a trial balance on a
worksheet.
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without the prior written consent of McGraw-Hill Education.
5-3
Section 1, Objective 5-1: Complete a trial balance on a worksheet.
Worksheet
•
•
•
The worksheet has an Account Name column
The worksheet also has five sections
Each section has two columns
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5-4
Section 1, Objective 5-1: Complete a trial balance on a worksheet.
Worksheet: Trial Balance (1 of 4)
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.
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5-5
Section 1, Objective 5-1: Complete a trial balance on a worksheet.
Worksheet: Trial Balance (2 of 4)
Eli’s Consulting Services Worksheet Month Ended
December 31, 2019
Step 1: Enter the general ledger account names.
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5-6
Section 1, Objective 5-1: Complete a trial balance on a worksheet.
Worksheet: Trial Balance (3 of 4)
Step 2: Transfer the general ledger account
balances to the Debit and Credit columns of the
Trial Balance section.
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without the prior written consent of McGraw-Hill Education.
5-7
Section 1, Objective 5-1: Complete a trial balance on a worksheet.
Worksheet: Trial Balance (4 of 4)
Step 3: Total the Debit and Credit columns to prove
that the trial balance is in balance.
Step 4: Place a double rule under each Trial
Balance column to show that the work in that
column is complete.
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without the prior written consent of McGraw-Hill Education.
5-8
Section 1: The Worksheet
Learning Objective 5-2: Prepare
adjustments for unrecorded
business transactions.
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without the prior written consent of McGraw-Hill Education.
5-9
Section 1, Objective 5-2: Prepare adjustments for unrecorded business
transactions.
The Supplies Adjustment
Eli’s 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?
ANSWER:
$ 1,500 – 1,000 = $ 500
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5-10
Section 1, Objective 5-2: Prepare adjustments for unrecorded business
transactions.
The Prepaid Adjustment
On November 20, 2019, Eli’ s Consulting
Services paid $8,000 for the December and
January rent. As of December 31, 2019, one
month’s rent had already been used up.
QUESTION:
What dollar amount of rent was used during the
month of December?
ANSWER:
$ 8,000 – 4,000 = $ 4,000
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5-11
Section 1, Objective 5-2: Prepare adjustments for unrecorded business
transactions.
Depreciation
The cost is recorded as an asset and charged to
expense over the time the asset is used for the
business.
Asset Pie:
•
Dec 2016 (Expense)
•
Jan 2017 (Expense)
•
Feb 2017 (Expense)
This expense is called depreciation
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5-12
Section 1, Objective 5-2: Prepare adjustments for unrecorded business
transactions.
Straight-line depreciation
There are several methods to calculate depreciation.
Eli’s 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.
Cost  salvage value
S L depreciation 
Estimated months of useful life
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5-13
Section 1, Objective 5-2: Prepare adjustments for unrecorded business
transactions.
Calculating Depreciation
Eli’s Consulting Services purchased equipment in
November, 2019.
• Cost = $11,000
• Useful life = 5 years or 60 months (5 years x 12
months)
• Salvage value = $0
QUESTION:
What dollar amount of depreciation expense should
be recorded for the month?
cost  salvage value
$ 11,000  $ 0

Estimated months of useful life
60 months
ANSWER : $ 183
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5-14
Section 1, Objective 5-2: Prepare adjustments for unrecorded business
transactions.
Adjustment for Depreciation
Instead of decreasing the asset account directly,
the adjustment for depreciation is recorded in a
contra account named Accumulated Depreciation—
Equipment.
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5-15
Section 1, Objective 5-2: Prepare adjustments for unrecorded business
transactions.
Worksheet: Prepare Adjustments
(1 of 2)
•
•
Adjusting entries are first entered in the
Adjustments section of the worksheet
When all adjustments are entered, total and
rule the Adjustments columns.
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5-16
Worksheet: Prepare Adjustments
(2 of 2)
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5-17
Section 1, Objective 5-2: Prepare adjustments for unrecorded business
transactions.
Book Value
Book value = Original cost – Accumulated
depreciation = 11,000 – 183 = 10,817
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5-18
Section 2.
The Accounting Cycle
Step
Step
Step
Step
Step
Step
Step
Step
Step
1:
2:
3:
4:
5:
6:
7:
8:
9:
Analyze transactions
Journalize the data about transactions
Post the data about transactions
Prepare a worksheet
Prepare financial statements
Record adjusting entries
Record closing entries
Prepare a postclosing trial balance
Interpret the financial information
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5-19
Section 2: Financial Statements
Learning Objective 5-3:
Complete the worksheet.
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5-20
Section 2, Objective 5-3: Complete the worksheet.
Preparing the Work Sheet
You have already seen how to prepare the first
two sections of a worksheet:
• Trial Balance
• Adjustments
You will now learn how to complete a
worksheet. Preparing a worksheet is the fourth
step of the accounting cycle.
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5-21
Section 2, Objective 5-3: Complete the worksheet.
Worksheet: Complete (1 of 4)
Step 1: Combine the figures from the Trial Balance
section and the Adjustments section. Record the
results in the Adjusted Trial Balance columns.
The accounts that do not have adjustments are
extended from the Trial Balance section to the
Adjusted Trial Balance section.
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)
Step 2: Total the Debit and Credit columns in the
Adjusted Trial Balance section. Confirm that debits
equal credits.
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5-22
Section 2, Objective 5-3: Complete the worksheet.
Worksheet: Complete (2 of 4)
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.
After all the account balances are transferred to the
financial statement sections, total the Debit and
Credit columns.
Subtract the smaller total from the larger total in
the Income Statement section to find the Net
Income or Net Loss.
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5-23
Section 2, Objective 5-3: Complete the worksheet.
Worksheet: Complete (3 of 4)
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)
Total the Income Statement and the Balance Sheet
sections
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5-24
Section 2, Objective 5-3: Complete the worksheet.
Worksheet: Complete (4 of 4)
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5-25
Section 2: Financial Statements
Learning Objective 5- 4:
Prepare financial statements from
the worksheet.
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5-26
Section 2, Objective 5-4: Prepare financial statements from the worksheet.
Income Statement (1 of 2)
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5-27
Section 2, Objective 5-4: Prepare financial statements from the worksheet.
Income Statement (2 of 2)
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5-28
Section 2, Objective 5-4: Prepare financial statements from the worksheet.
Account Form of Balance Sheet
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5-29
Section 2, Objective 5-4: Prepare financial statements from the worksheet.
Report Form of Balance Sheet
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5-30
Section 2: Financial Statements
Learning Objective 5-5:
Journalize and post the adjusting
entries.
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5-31
Section 2, Objective 5-5: Journalize and post the adjusting entries.
Worksheet
Remember, a worksheet is just a tool that
accountants use.
The worksheet is NOT...
• A financial statement
• A permanent part of the accounting records
It is only a tool. BUT....
The adjustments shown on the worksheet must
become part of the permanent accounting
records. Each adjustment is journalized and
posted to the general ledger accounts.
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5-32
Section 2, Objective 5-5: Journalize and post the adjusting entries.
Consulting Services record
QUESTION:
What adjustments must Eli’s Consulting Services
record for the month?
ANSWER:
a) Adjustment for supplies used.
b) Adjustment for expired rent.
c) Adjustment for depreciation.
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5-33
Section 2, Objective 5-5: Journalize and post the adjusting entries.
General Journal
Here is the first adjusting journal entry which has
been posted to the Supplies Expense ledger
account.
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5-34