Ch 7 Section 2
Planning Adjusting Entries on a
Work Sheet
Planning Adjustments On A Work Sheet
 Sometimes a business will pay cash for an
expense in one fiscal period, but the expense is
not used until a later period.
 The expense should be reported in the same fiscal
period that it is used to produce revenue.
 The accounting concept, Matching Expenses
with Revenue, is applied when revenue from
business activities and expenses associated with
earning that revenue is recorded in the same
accounting period.
Matching Revenue With Expenses
 Encore music buys supplies in quantity in
August, but some of the supplies are not
used until September. Only the value of the
supplies used in August should be reported
as an expense in August.
 With this method, August revenue and the
supplies expense associated with earning
the revenue are recorded in the same
accounting period.
From Asset to Expense
 Supplies on hand with a business is
an asset until it is used.
 Then it becomes an expense
 Insurance purchased for a year is
Prepaid Insurance until all or part of it
is used.
 Then it becomes an expense.
Adjustments
 Changes recorded on a worksheet to update
general ledger accounts at the end of a fiscal
period are called adjustments.
 The portions of the assets consumed in order to
earn revenue become expenses of the business.
(Supplies, insurance, etc.)
 After the adjustments are made, the expenses
incurred to earn revenue are reported in the same
fiscal period.
 Changes are NOT made in the general ledger
until adjustments are journalized and posted.
Adjustment - Supplies
On August 31, the business counted the supplies
on hand and found that the value of the supplies
still unused on that date was $2,187
Insert math problem page 161
SUPPLIES ADJUSTMENT ON A
WORK SHEET
2
3
1
At the end of the fiscal period, you take an inventory of supplies and find
that there are $2187.00 of supplies on hand. Make the adjustment to the
Supplies account.
1. Write the debit amount.
2. Write the credit amount.
3. Label the two parts of this adjustment with a
small letter a in parentheses, (a).
Lesson 7-2, page 161
PREPAID INSURANCE
ADJUSTMENT ON A WORK SHEET
2
3
1
At the end of the fiscal period, you review your insurance statements
and find that you only have $1100.00 of coverage remaining. Make the
adjustment to the Prepaid Insurance account.
1. Write the debit amount.
2. Write the credit amount.
3. Label the two parts of this adjustment with a
small letter b in parentheses, (b).
Lesson 7-2, page 162
PROVING THE ADJUSTMENTS
COLUMNS OF A WORK SHEET
1. Rule a single line.
2. Add both the
Adjustments
Debit and Credit
columns.
3. Rule double lines.
1
2
3
Lesson 7-2, page 163
Work Together 7-2
Txtbk Page 164
Wkbk pg 131
7-2 WT
Classwork 7-2
 OYO textbook page 164 using workbook
page #132.
 Application Problem 7-2 textbook page 175
using workbook page #149.
 Go to my website www.sssuc.weebly.com and
open up the Word file named “ch7 7-2 adjustments”
and follow the directions.