Chapter 18 Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax $ $ What You’ll Learn Why the Supplies, Prepaid Insurance, and Federal Corporate Income Tax Expense accounts are adjusted. How to calculate the adjustments for supplies, insurance, and federal corporate income tax. How to enter the adjustments on the work sheet. $ $

$ $ $ $ Why It’s Important Chapter 18 Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (cont'd.) Chapter 18 $ Why It’s Important Account balances related to supplies, insurance, and federal corporate income tax require adjustment in order to prepare accurate financial reports. $ $ $

$ $ $ $ Adjusting the Supplies Account Chapter 18 Adjustment Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (cont'd.) Chapter 18 $ Adjusting the Supplies Account Adjustment $ Record the adjustment for supplies. ANALYSIS Identify 1. The accounts affected are Supplies and Supplies Expense. $ Classify 2. Supplies is an asset account (permanent). Supplies Expense is an expense account (temporary). $ + / – 3. Supplies is decreased by $3,710. Supplies Expense is increased by $3,710.

$ $ $ $ Adjusting the Supplies Account (cont'd.) Chapter 18 Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (cont'd.) Chapter 18 $ Adjusting the Supplies Account (cont'd.) $ Adjustment (cont'd.) Record the adjustment for supplies. $ DEBIT-CREDIT RULE 4. Increases to expense accounts are recorded as debits. Debit Supplies Expense for $3,710. 5. Decreases to asset accounts are recorded as credits. Credit Supplies for $3,710. $

$ $ $ $ Adjusting the Supplies Account (cont'd.) Chapter 18 Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (cont'd.) Chapter 18 $ Adjusting the Supplies Account (cont'd.) $ Adjustment (cont'd.) Record the adjustment for supplies. $ Supplies Expense Supplies T ACCOUNTS 6. Debit + 3,710 Credit – Debit + Credit – 3,710 $

$ $ $ $ Adjusting the Prepaid Insurance Account Chapter 18 Adjustment Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (cont'd.) Chapter 18 $ Adjusting the Prepaid Insurance Account Adjustment $ Record the adjustment for the expiration of one-half month’s insurance coverage. ANALYSIS Identify 1. The accounts affected are Insurance Expense and Prepaid Insurance. $ Classify 2. Insurance Expense is an expense account (temporary). Prepaid Insurance is an asset account (permanent). $ + / – 3. Insurance Expense is increased by $125. Prepaid Insurance is decreased by $125.

$ $ $ $ Adjusting the Prepaid Insurance Account (cont'd.) Chapter 18 Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (cont'd.) Chapter 18 $ Adjusting the Prepaid Insurance Account (cont'd.) $ Adjustment (cont'd.) Record the adjustment for the expiration of one-half month’s insurance coverage. $ DEBIT-CREDIT RULE 4. Increases to expense accounts are recorded as debits. Debit Insurance Expense for $125. 5. Decreases to asset accounts are recorded as credits. Credit Prepaid Insurance for $125. $

$ $ $ $ Adjusting the Prepaid Insurance Account (cont'd.) Chapter 18 Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (cont'd.) Chapter 18 $ Adjusting the Prepaid Insurance Account (cont'd.) $ Adjustment (cont'd.) Record the adjustment for the expiration of one-half month’s insurance coverage. $ T ACCOUNTS 6. Insurance Prepaid Expense Insurance Debit + 125 Credit – Debit + Credit – 125 $

$ $ $ $ Check Your Understanding Chapter 18 Section 2 Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax (cont'd.) Chapter 18 $ Check Your Understanding $ Explain how to make an adjustment for prepaid insurance. $ $