Adjusting Entries and
The Worksheet
Chapter 4
Expected Learning Outcomes
 List the classifications of the accounts
that occupy each column of a tencolumn worksheet
 Complete a worksheet for a service
enterprise
 Journalize and post adjusting entries
 Prepare statements from worksheet
How the Course Is Organized
 Chapter 1 – Introduction
 Chapter 2 – Analyzing business
transactions
 Chapter 3 – Journalizing and posting
 Chapter 4 – Adjustment data and
worksheet
 Chapter 5 – Closing entries
Fiscal Period
 Period of time covering a complete
accounting cycle through closing entries
 A day, week, month, whenever you want
 Monthly is normal for comparison purposes
 Fiscal year
 Complete cycle for 12 months
 Need not coincide with calendar year
The 10-Column Worksheet
 Working paper
 Simply a tool used for accounting
 To record necessary updates for financial
statements
 Central place for bringing together
information for adjustments
Ten Column Worksheet
(Overlay pages - Page 120)
 10 columns for recording dollar amounts
 2 columns for each heading (debit/credit)
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Trial balance
Adjustments
Adjusted trial balance
Income Statement
Balance Sheet
Trial Balance Columns
 You have done this in the homework
 A listing of each account in the order
of
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Assets
Liabilities
Owner’s equity
Revenue
Expenses
Trial Balance Columns
 Noting the balance in each account
 Foot the debit and credit columns and
make sure they balance
 If you are not in balance, fix it here
before continuing
Adjustments
 These update the ledger accounts
 Internal transactions where no money
has changed hands….cash is NOT
involved
 Cash account is NEVER used in
adjustment columns
Adjustment Example
Paid $360 for Insurance for 1 Year on
February 1
Analyze the transaction
 Debit Prepaid Insurance $360
 Credit Cash $360
 March 1st – How have the accounts
changed?
 $360/12 = $30 of Prepaid Insurance
used
 Insurance Expense increased $30
Depreciation
 Depreciation Expense is recorded
every period that an asset was in use
 This “expenses” the cost of the asset
over its useful life
 At the end of its use, an asset has a
“trade-in value” or salvage value.
Depreciation
 The amount in the asset account is the cost
of the asset until disposed
 The amount in the asset account minus the
amount in the Accumulated Depreciation
account is called “book value”
 Depreciation is not deducted directly from
the asset account – a new account called
“Accumulated Depreciation” is created for
each asset. This way, you can see on the
balance sheet how much of the asset has
expired.
Depreciation of Equipment
(page 115)
 Estimated useful life of equipment is 7
years
 Estimated value of equipment at end of 7
years is $6,880 (trade-in or salvage value)
 Cost of equipment ($49,720) minus tradein value ($6,880) divided by the number of
years of use (7) is the annual depreciation
 This annual depreciation is divided by 12 to
get the Depreciation Expense amount for
each month
(continued next slide)
Depreciation Example
Bought Equipment for $49,720
 $49,720 - $6,880 (trade-in) = $42,840
 $42,840 / 7 years = $6,120 per year
 Divide the depreciation for one year by 12
to get the depreciation for one month
($6,120 per year / 12 = $510 per month)
 Each month the depreciation expense is
recorded in Depreciation Expense as a debit
of $510 (Income Statement)
 Each month Accumulated Depreciation is
credited $510 (Balance Sheet)
 You are matching expenses against
revenue for a certain period
Depreciation (review)
 Record assets at the purchase price
 Expense the asset over its useful life
 Expense claimed each period during
the useful life is called Depreciation
Expense
 Each asset has its own Accumulated
Depreciation account (contra account)
 See p. 116 for how it will look on the
Balance Sheet.
Adjustments -Wages Expense (page 116)
 End of the reporting period
 Owe wages to employees
 Haven’t paid them yet but the books are
“being closed” so they must be
accounted for
 Figure out how much they have earned
up to the date you are closing the books
 Debit Wages Expense account
 Credit Wages Payable account
Wages Expense Example
End of Month on a Wednesday
 You pay wages of $300 every week
on Friday to your employees
 Equals $60 per day (5-day week)
 Your employees worked 3 days in this
calendar month (Mon., Tues., Wed.) $180 of wages earned ($60 x 3)
 Wages Expense debited $180
 Wages Payable credited $180
What Happens Friday When You
Pay Wages
•Debit – Wages Payable
Wages Payable
180
•Credit - Cash
Cash
180
If you debit Wages Expense here then you will be
recording it twice
The Worksheet Adjustment
Columns
 Page 120
 Make sure that debits equal credits here
 Label each adjusting entry with letter
labels, for example, (a) for each debit and
credit adjustment to insurance, (b) for
each adjustment to depreciation, and (c)
for each adjustment to wages
 Write notes explaining each adjustment,
labeled by letter, at the bottom of the
Account Name column on the worksheet.
Adjusted Trial Balance
 You have added the columns (up
and down) up until now.
 Now you are going to add/subtract
the rows (across) from the trial
balance and adjustments
 This gives you the current status of
the accounts (Adjusted Trial
Balance)
 Page 123
Income Statement Column
 Copy the figures from the adjusted
trial balance for all accounts that go
into the Income Statement
 Revenue and expenses only
 See overlay after page 120
 Foot the columns – and debits will
NOT equal credits – why not?
 You haven’t considered profit
Balance Sheet Column
 Copy the balances from all other than
Income Statement accounts from the
adjusted trial balance column to
these accounts
 Foot the columns and they will not
balance….why not?
Balance Sheet Column
 We haven’t considered profit
 The difference here will be the exact
same difference from the Income
Statement columns
Steps in Completing the
Worksheet
1. Complete trial balance columns, foot
and double underline if in balance
(rule)
2. Complete the adjustments columns,
foot and rule
3. Complete adjusted trial balance, foot
and rule
Steps in Completing the
Worksheet
4. Record balances in the Income
Statement and Balance Sheet
columns, foot
5. Record net income or net loss in
Income Statement columns by
subtracting the smaller side from the
larger side and adding the difference
to the smaller side, foot and rule
Steps in Completing the
Worksheet
6. Record net income or net loss in
Balance Sheet column by subtracting
the smaller side from the larger side
and adding the difference to the
smaller side, foot and rule
7. The numbers in step 5 and 6 should
be the same
Completing Financial
Statements
 The worksheet helps us do this
 The Income Statement is taken
directly from the Income
Statement columns of the
worksheet
Completing Financial
Statements
 When completing the Statement of
Owner’s Equity – you need to look at
the ledger account…NOT the
worksheet for the beginning total
 The Balance Sheet figures come
directly from the Balance Sheet
columns EXCEPT Capital, which is
taken the Statement of Owner’s
Equity
After Completing the
Statements
 Journalize and post adjustments
 You do this by looking at the
adjustment columns on the
worksheet and making the
journal entries. Then post the
journal entries to your ledger
accounts to update your books.
Depreciation Accounts
 Contra Assets
 Are on the Balance Sheet following
the asset
 See page 125
Learning Outcomes Review
 List the classifications of the accounts
that occupy each column of a tencolumn worksheet
 Complete a worksheet for a service
enterprise
 Journalize and post adjusting entries
 Prepare statements from worksheet
Monday, October 1
In-class demonstration problems
p. 137 – Exercise 4-8 – Journalize
adjusting entries
p. 133 – Exercise 4-2 – Classify
accounts and indicate normal
balances and statement columns
p. 135 – Exercise 4-5 – Prepare
adjustments and adjusted trial
balance
Wednesday, October 3
In-class demonstration problem
pp. 141-142 – Problem 4-1B
 Record amounts in the Trial Balance
columns of the work sheet
 Complete the work sheet by making
adjustments
Homework for Chapter 4
 p. 139 – Problem 4-2A
Prepare Income Statement, Statement of Owner’s
Equity, Balance Sheet, and adjusting entries
 pp. 139-140 – Problem 4-3A
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Complete the work sheet by making adjustments
Journalize the adjusting entries
Not due until October 17, but keep current!