1. The Accounting Cycle Continued – Preparing Worksheets and Financial Statements
Chapter 4 2

2. Following GAAP GAAP is Generally Accepted Accounting Principles.
Accrual based accounting is used.
Revenue is recognized when earned.
Expenses are recorded in order to be matched against the generated revenue. 4

3. Following GAAP What are adjusting entries?
Adjusting entries are made to bring accounts to correct balances before preparing financial statements.
Worksheets assist in this process. 4

4. The Accounting Cycle 1 2 Journal 3 Ledger Business Transactions
Book of
Original Entry
Book of
Final Entry 5 4
Worksheet
Trial Balance 4

5. The Accounting Cycle Worksheet Adjusted
Trial Adjustments Trial Income Balance
Balance Balance Statement Sheet
6 Financial
Statements
Balance
Sheet
Statement of
Owner’s Equity
Income
Statement 4

6. Adjustments: prepaid rent, office supplies, depreciation on
Learning Objective 1
Adjustments: prepaid rent,
office supplies, depreciation on
equipment, and accrued salaries. 6

7. Preparing a worksheet:
Learning Unit 4-1
Preparing a worksheet:
A worksheet is used to facilitate the preparation of adjusting entries and financial statements.
The worksheet is not a formal report.
Correct heading information is used. 6

8. Learning Unit 4-1 Adjusting entries:
Assets must be adjusted to show amounts used or allocated to periods and are recorded as expenses.
supplies used
prepaid rent expired over time
equipment depreciated 7

9. Learning Unit 4-1
Expenses incurred must be recorded in the correct period before the period closes.
What is an example?
accrued salaries which have not been previously recorded 8

10. Learning Unit 4-1 Depreciation is a unique adjustment.
Equipment and other long-lived assets help produce revenue over long periods of time.
Original cost (amount paid) is also known as historical cost. 9

11. Learning Unit 4-1
Historical cost of the asset remains in the financial statements.
This cost remains in the records as a balance in the asset account.
This cost is allocated to expense over the life of the asset.
What is the accompanying account? 9

12. Learning Unit 4-1
The accompanying (contra-asset) account is called Accumulated Depreciation.
This account is used for the yearly credited amounts.
The normal balance is a credit balance.

13. Learning Unit 4-1 Worksheet Sections The Trial Balance The Adjustments
The Adjusted Trial Balance
Income
Statement
Balance
Sheet 11

14. Learning Unit 4-1 Income Statement: List Revenues & Expenses Only
Balances
with the net
income/loss.
Balance
Sheet:
Balances
with the net
income/loss.
A = L + OE

15. Preparation of adjusted trial balance on the worksheet.
Learning Objective 2
Preparation of adjusted trial
balance on the worksheet. 6

16. Adjustments Example What are the adjusting entries for supplies?
Journal: Debit Credit Supplies Expense x Supplies (record correct amounts) x
The balance in the supplies account after adjusting entries will be equal to the dollar amount of the supplies on hand at the end of the accounting period. 17

17. Adjustments Example Adjusting entries for depreciation.
Journal: Debit Credit Depreciation Expense x Accum. Depr. Equip x To record the proper amounts for all relevant asset accounts 19

18. Adjustments Example
What are the adjusting entries for accrued service revenue?
Journal: Debit Credit Accounts Receivable x Revenue x To record the proper amounts for relevant asset and revenue accounts 17

19. Adjustments Example Adjusted Trial Balance Adjustments Trial Balance
Account Title Dr. Cr Dr Cr. Dr. Cr.
Cash
Accounts receivable
Supplies
Equipment
Accum. depreciation
Accounts payable
Capital
Revenue
Various expenses
Supplies expense
Depreciation expense
Totals
4,065
850
300
1,200
1,205
7,620
170
5,000
2,450
7,620

20. Adjustments Example
The business has earned revenue of $1,000 that will be collected next month.
Inventory of supplies at month end totaled $100.
Depreciation for the period was calculated as $50.

21. Adjustments Example Adjusted Trial Balance Adjustments Trial Balance
Account Title Dr. Cr Dr Cr. Dr. Cr.
Cash
Accounts receivable
Supplies
Equipment
Accum. depreciation
Accounts payable
Capital
Revenue
Various expenses
Supplies expense
Depreciation expense
Totals
4,065
850
300
1,200
1,205
7,620
a) 1,000 b) c)
1,250 b) c)
a) 1,000
1,250
170
5,000
2,450
7,620

22. Adjustments Example Adjusted Trial Balance Adjustments Trial Balance
Account Title Dr. Cr Dr Cr. Dr. Cr.
Cash
Accounts receivable
Supplies
Equipment
Accum. depreciation
Accounts payable
Capital
Revenue
Various expenses
Supplies expense
Depreciation expense
Totals
4,065
850
300
1,200
1,205
7,620
4,065
1,850
100
1,200
1,205
200 50
8,670
a) 1,000 b) c)
1,250 b) c)
a) 1,000
1,250
170
5,000
2,450
7,620 50
170
5,000
3,450
8,670

23. The income statement and balance sheet sections
Learning Objective 3
The income statement and
balance sheet sections
of the worksheet. 6

24. Adjustments Example Adjusted Income Balance
Trial Balance Statement Sheet
Account Title Dr Cr Dr Cr. Dr Cr.
Cash
Accounts receivable
Supplies
Equipment
Accum. depreciation
Accounts payable
Capital
Revenue
Various expenses
Supplies expense
Depreciation expense
Totals
4,065
1,850
100
1,200
1,205
200 50
8,670
1,205
200 50
1,455
4,065
1,850
100
1,200
7,215 50
170
5,000
3,450
8,670
3,450 50
170
5,000
5,220
1,995
1,995

25. Preparing financial statements
Learning Objective 4
Preparing financial statements
from the worksheet. 6

26. Preparing the financial statements from the worksheet
Learning Unit 4-2
Preparing the financial statements from the worksheet
The Income Statement
Revenue and expenses are reported on the income statement.

27. The Statement of Owner’s Equity
Learning Unit 4-2
The Statement of Owner’s Equity
It uses the beginning capital balance from the balance sheet columns.
Subtract withdrawals amount and net loss and then add net income.

28. Learning Unit 4-2 The Balance Sheet
Use the asset and liability balances from the balance sheet columns.
Use the corrected owner’s equity amounts from the Statement of Owner’s Equity.

29. End of Chapter 4