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0 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 18 Adjustments and the Ten-Column Work.

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Presentation on theme: "0 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 18 Adjustments and the Ten-Column Work."— Presentation transcript:

1 0 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 18 Adjustments and the Ten-Column Work Sheet What You’ll Learn  Describe the parts of a ten-column work sheet.  Generate trial balances and end-of-period adjustments.  Determine which general ledger accounts to adjust.  Calculate the adjustments.  Prepare a ten-column work sheet.  Journalize the adjustments.  Define the accounting terms introduced in this chapter.

2 1 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 18, Section 1 Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory What Do You Think? Why is it important to have up-to-date balances at period end?

3 2 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea Adjustments transfer the cost of “used up” assets to expense accounts. Adjustments for changes in merchandise inventory are made directly to the Income Summary account. You Will Learn  the purpose of the ten-column work sheet.  how to use the ten-column work sheet for adjustments. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1

4 3 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  adjustment  beginning inventory  ending inventory  physical inventory Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1

5 4 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Completing End-of-Period Work In addition to account totals, managers, stockholders, and creditors need to know net income and the value of stockholders’ equity to make sound business decisions. In this chapter, you will learn how to prepare a ten- column work sheet for a merchandising business. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1

6 5 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Ten-Column Work Sheet The ten-column work sheet is prepared in the same way as the six-column work sheet, but the ten-column work sheet has five amount sections:  Trial Balance  Adjustments  Adjusted Trial Balance  Income Statement  Balance Sheet Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1

7 6 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Completing the Trial Balance Section A trial balance is used to prove the general ledger. Follow these steps to prepare the trial balance:  Enter the account name and number for each account in the Account Name and Number columns.  Enter the balance in the Debit or Credit column.  Rule the Debit and Credit columns.  If the Debit and Credit columns are proven, draw a double-rule line across both columns. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1

8 7 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. SECTION 18.1 Completing the Trial Balance Section The Trial Balance section of the Work Sheet

9 8 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Calculating Adjustments Some changes in account balances result from internal business operations or the passage of time. Examples are Supplies and Prepaid Insurance. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1

10 9 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Permanent Accounts and Temporary Accounts A change in an account balance caused by the internal operations or the passage of time is recorded through an adjustment. At the end of the period, adjustments are made to transfer the costs of assets consumed from asset accounts to the appropriate expense accounts. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1

11 10 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Determining the Adjustments Needed If a balance is not up to date as of the last day of the fiscal period, it must be adjusted. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1

12 11 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Adjusting the Merchandise Inventory Account Beginning inventory is the merchandise a business has on hand at the beginning of a period. Ending inventory is the merchandise on hand at the end of a period. The asset account Merchandise Inventory’s balance changes only when a physical inventory, an actual count of all merchandise on hand and available for sale, is taken. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1

13 12 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Calculating the Adjustment for Merchandise Inventory When calculating the adjustment for Merchandise Inventory, you need to know  the account’s balance, and  the physical inventory amount. Purchases and sales during the period will decrease the account balance. The reduction in inventory is recorded as an adjustment in the accounting records. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1

14 13 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. SECTION 18.1 Calculating the Adjustment for Merchandise Inventory

15 14 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Entering the Adjustment for Merchandise Inventory on the Work Sheet Adjustments are entered in the Adjustments columns of the work sheet. To do this, follow these steps:  In the Adjustments Debit column, enter the debit amount of the adjustment on the Income Summary line.  In the Adjustments Credit column, enter the credit amount of the adjustment on the Merchandise Inventory line. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1

16 15 Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  adjustment An amount that is added to or subtracted from an account balance to bring that balance up to date.  beginning inventory The merchandise a business has on hand at the beginning of a period.  ending inventory The merchandise a business has on hand at the end of a period.  physical inventory An actual count of all merchandise on hand and available for sale. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory SECTION 18.1


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