Chapter 11
Work Sheet and
Adjusting Entries
1
College Accounting
10th Edition
McQuaig
McQuaig
Bille
Bille
Nobles
PowerPoint presented by Douglas Cloud
Professor Emeritus of Accounting, Pepperdine University
11–1
© 2011 Cengage Learning
LEARNING OBJECTIVES
After
this
chapter, this
you chapter,
should be
able
Afterstudying
you have
completed
you
willto:
be
able to do the following:
1
Prepare an adjustment for supplies.
2
Prepare an adjustment for unearned
revenue.
3
Prepare an adjustment for merchandise
inventory under the periodic inventory
system.
(continued)
11–2
After
this
chapter, this
you chapter,
should be
able
Afterstudying
you have
completed
you
willto:
be
able to do the following:
4
Record the adjusting data in a work sheet
(including merchandise inventory, unearned
revenue, supplies remaining, expired
insurance, depreciation, and accrued wages
or salaries).
5
Complete the work sheet.
6
Journalize the adjusting entries for a
merchandising business under the periodic
inventory system.
7
Prepare and journalize the adjusting entry
for merchandise inventory under the
perpetual inventory system.
11–3
Accounting Language
 We have talked about the journals and
accounts kept by a merchandising
business.
 Now we take another step toward
completing the accounting cycle by
presenting the related adjustments and
the work sheet.
 Let’s briefly review the adjusting entries
you have learned so far using Slides 5
through 7.
(continued)
11–4
Review
Insurance expired, $3,600. (The amount
expired is the amount used.)
(continued)
11–5
Review
Additional depreciation, $1,800. (Add to both
accounts.)
(continued)
11–6
Review
Accrued wages (owed but not yet paid), $2,900.
(Add to both accounts.)
11–7
Learning Objective 1
Prepare an adjustment
for supplies.
11–8
Adjustment for Supplies
If the amount of supplies held at the end of
the accounting period is substantial, then an
adjustment should be made to capitalize the
supplies that were not consumed during the
accounting period.
(continued)
11–9
Adjustment for Supplies
Marlin & Co. has a balance of $12,000 in the
Supplies Expense account. At year end, a
count determines that $11,052 of supplies are
left.
11–10
PRACTICE EXERCISE 1
Assume that Bowie Corporation has a balance of $9,340 in
the Supplies Expense account as a result of buying supplies
throughout the year. However, after taking a count of the
supplies on hand, it is determined that $2,599 of supplies
are left. Journalize the year-end adjusting entry for Bowie
Corporation.
11–11
PRACTICE EXERCISE 1 SOLUTION
11–12
Learning Objective 2
Prepare an adjustment
for unearned revenue.
11–13
Adjustment for
Unearned Revenue
Unearned revenue is cash received in
advance for goods or services to be
delivered or performed later.
 A professional sports team sells tickets in
advance
 A magazine publisher sells subscriptions
in advance
An unearned revenue account is classified
as a liability.
(continued)
11–14
Adjustment for
Unearned Revenue
On April 1, Ressor Publishing Company receives
$73,000 in cash for subscriptions paid in advance
(crediting Unearned Subscriptions). At the end
of the year, Ressor finds that $32,400 of the
subscriptions had been earned.
(continued)
11–15
Adjustment for
Unearned Revenue
On November 1, Trey’s Landscape Supply receives
$2,400 in fees for a three-month landscape
maintenance course (crediting Unearned Course
Fees). On December 31, $1,600 (2/3 of $2,400)
has been earned.
(continued)
11–16
Adjustment for
Unearned Revenue
Occasionally, there is an accounting
“rule of thumbs” that is helpful in
determining an accounting
procedure. Here’s one for unearned
revenue: Any account beginning with
the word “Unearned” is always a
liability.
11–17
PRACTICE EXERCISE 2
On June 1, Thompson Company receives $148,540 in cash
for subscriptions covering two years. At the end of the year,
Thompson finds that $94,302 of the subscriptions have
been earned. Record in general journal form (a) the original
receipt of cash on June 1 and (b) the year-end adjusting
entry for Thompson Company.
11–18
PRACTICE EXERCISE 2 SOLUTION
11–19
Learning Objective 3
Prepare an
adjustment for
merchandise
inventory using the
periodic inventory
system.
11–20
Adjustment for Merchandise Inventory
Using the Periodic Inventory System
 Under the periodic inventory system, we do not
make an entry in the Merchandise Inventory
account until an actual physical inventory or
count of stock of goods on hand has been
taken.
 A firm has a Merchandise Inventory balance of
$183,000. A count of stock on hand determines
the cost of the ending inventory to be $186,000.
(continued)
11–21
Adjustment for Merchandise Inventory
Using the Periodic Inventory System
STEP 1. Eliminate the amount of the beginning
inventory from the Merchandise
Inventory account by transferring the
amount into Income Summary.
(continued)
11–22
Adjustment for Merchandise Inventory
Using the Periodic Inventory System
STEP 2. Enter the ending or latest physical
inventory count of Merchandise
Inventory (the ending inventory).
(continued)
11–23
FIGURE 1
Trial balance section
of Whitewater Raft
Supply’s work sheet
11–24
PRACTICE EXERCISE 3
Morkin Company’s beginning inventory amounted to
$264,072. A physical count at the end of the year reveals
that the ending inventory amount is $267,332. Record the
adjustment needed into the T accounts.
11–25
PRACTICE EXERCISE 3 SOLUTION
11–26
Learning Objective 4
Record the adjustment
data in a work sheet
(including merchandise
inventory, unearned
revenue, supplies
remaining, expired
insurance, depreciation,
and accrued wages or
salaries).
11–27
Data for the Adjustments
a-b. Ending merchandise inventory, $64,800.
The adjustments for inventory generally
are placed first.
(continued)
11–28
Data for the Adjustments
c. Course fees earned, $800.
(continued)
11–29
Data for the Adjustments
d. Ending supplies inventory, $415.
(continued)
11–30
Data for the Adjustments
e. Insurance expired, $520.
(continued)
11–31
Data for the Adjustments
f. Additional year’s depreciation of building,
$3,500.
(continued)
11–32
Data for the Adjustments
g. Additional year’s depreciation of equipment,
$4,900.
(continued)
11–33
Data for the Adjustments
h. Wages owed but not paid to employees at end
of year, $1,030.
(continued)
11–34
FIGURE 2
Trial balance and
adjustments
sections of
Whitewater Raft
Supply’s work sheet
11–35
PRACTICE EXERCISE 4
Following are the adjustment data for Majors Company:
a‒b.
c.
d.
e.
f.
g.
h.
Merchandise Inventory, $64,800.
Course fees earned, $1,800.
Supplies inventory, $2,415.
Insurance expired, $1,520.
Depreciation of building, $13,500.
Depreciation of equipment, $5,900.
Wages accrued, $2,030.
Record these data in the Adjustments column of the worksheet
found in Slide 37.
(continued)
11–36
PRACTICE
EXERCISE 4
(concluded)
11–37
PRACTICE EXERCISE 4 SOLUTION
The solution to Practice Exercise 4 can be found in Slide
39.
(continued)
11–38
PRACTICE
EXERCISE 4
SOLUTION
(concluded)
11–39
Learning Objective 5
Complete the work
sheet.
11–40
Completion of the Work Sheet
 To reduce the number of columns in the work
sheet, the “Adjusted Trial Balance” columns
have been eliminated.
 The account balances after the adjusting
entries are carried directly into the “Income
Statement” and “Balance Sheet” columns.
(continued)
11–41
FIGURE 3
Completed work
sheet for Whitewater
Raft Supply
(continued)
Net Income
11–42
FIGURE 3
Completed work
sheet for Whitewater
Raft Supply
(concluded)
Net Income
11–43
Completion of the Work Sheet
STEP 1. Record the trial balance, and make
sure that the total of the Debit
column equals the total of the Credit
column before going to the
adjustments.
(continued)
11–44
Completion of the Work Sheet
STEP 2. Record the adjustments in the
“Adjustments” columns, and make
sure that the totals are equal before
extending the new totals into the
“Income Statement” and “Balance
Sheet” columns.
(continued)
11–45
Completion of the Work Sheet
STEP 3. Complete the “Income Statement”
and “Balance Sheet” columns by
recording the adjusted balance for
each account. The accounts and
classifications pertaining to a
merchandising business using the
periodic inventory system appear in
Slide 47.
(continued)
11–46
Completion of the Work Sheet
(continued)
11–47
Completion of the Work Sheet
11–48
PRACTICE EXERCISE 5
Complete the Income Statement and Balance Sheet
columns of the work sheet for Majors Company from
Practice Exercise 4.
PRACTICE EXERCISE 5 SOLUTION
For your convenience, the solution for Practice Exercise 4
is in Slides 50 and the solution to Practice Exercise 5 is in
Slide 51.
(continued)
11–49
Net Income
11–50
PRACTICE EXERCISE 5 SOLUTION (concluded)
Net Income
11–51
Learning Objective 6
Journalize the
adjusting entries for a
merchandising
business under the
periodic inventory
system.
11–52
FIGURE 4
Adjusting entries for
Whitewater Raft Supply
(continued)
11–53
FIGURE 4
Adjusting entries for Whitewater
Raft Supply (concluded)
11–54
PRACTICE EXERCISE 6
Prepare the year-end adjusting entries from the Adjustments
column of Major Company’s work sheet from Practice
Exercise 4.
PRACTICE EXERCISE 6 SOLUTION
The solution to Practice Exercise 4 is found in Slide 56 and
the solution to Practice Exercise 6 is in Slides 57 and 58.
11–55
11–56
PRACTICE EXERCISE 6 SOLUTION
(continued)
11–57
PRACTICE EXERCISE 6 SOLUTION (concluded)
11–58
Learning Objective 7
Prepare and journalize
the adjusting entry for
merchandise inventory
under the perpetual
inventory system.
11–59
Adjustment for Merchandise Inventory
Using the Perpetual Inventory System
 Under the perpetual inventory system, a
business continually maintains a record of each
item in stock.
 When merchandise is purchased, the
Merchandise Inventory account (not the
Purchases account) is debited.
 If the amount shown by a physical count is less
than the computer record, this is called
inventory shrinkage.
11–60
FIGURE 5
A portion of the trial balance section of
Whitewater Raft Supply’s work sheet
(perpetual inventory system)
11–61
Adjusting Entry Using the
Perpetual Inventory System
1. A firm that has a beginning inventory of
$75,000 bought merchandise on account,
$50,000.
(continued)
11–62
Adjusting Entry Using the
Perpetual Inventory System
2. Sold merchandise on account for $84,000
having a cost of $60,300.
11–63
Adjusting Entry Using the
Perpetual Inventory System
3a. A physical count of inventory revealed that
$63,200 was on hand. The perpetual record
showed $64,700 ($75,000 + $50,000 ‒
$60,300).
(continued)
11–64
Adjusting Entry Using the
Perpetual Inventory System
3b. Suppose, on the other hand, that the
physical count of the stock of merchandise
($65,200) were more than the recorded
amount ($64,700). The adjusting entry is to
debit Merchandise Inventory and credit
Cost of Goods Sold for the difference
($65,200 – $64,700 = $500). (See Figure 6
in Slide 66).
11–65
FIGURE 6
Adjusting entry for ending inventory
under the perpetual inventory system
11–66
Comparison of Periodic and
Perpetual Systems
11–67
PRACTICE EXERCISE 7
Larkin Company employs the perpetual inventory system.
The computer record shows the amount of ending inventory
to be $369,583, while the physical count shows ending
inventory to be $362,720. Record the adjustment into T
accounts and then journalize the adjusting entry.
11–68
PRACTICE EXERCISE 7 SOLUTION
11–69
THE END
11–70