Adjustments and the Ten-Column Work Sheet Making Accounting Relevant Financial data must be communicated properly before it can be used effectively. Making Accounting Relevant Financial data must be communicated properly before it can be used effectively. Discuss the types of communication skills that are important to success in the workplace.

Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory What You’ll Learn  How to complete the Trial Balance section of the work sheet.  Why certain general ledger accounts are adjusted.  Why Merchandise Inventory is adjusted.  How to calculate and record the adjustment for Merchandise Inventory. What You’ll Learn  How to complete the Trial Balance section of the work sheet.  Why certain general ledger accounts are adjusted.  Why Merchandise Inventory is adjusted.  How to calculate and record the adjustment for Merchandise Inventory.

Why It’s Important Some general ledger account balances are adjusted, or updated, so that the general ledger correctly reflects the financial position of the business at the end of the period. This ensures the accuracy of the end-of-period reports and statements. Why It’s Important Some general ledger account balances are adjusted, or updated, so that the general ledger correctly reflects the financial position of the business at the end of the period. This ensures the accuracy of the end-of-period reports and statements. Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.) Key Terms  adjustment  beginning inventory Key Terms  adjustment  beginning inventory  ending inventory  physical inventory  ending inventory  physical inventory

Completing End-of-Period Work  The purpose of all end-of-period reports is to provide essential information about the financial position of a business organization.  The worksheet is the basis for preparing end-of-period financial statements and journal entries.  The purpose of all end-of-period reports is to provide essential information about the financial position of a business organization.  The worksheet is the basis for preparing end-of-period financial statements and journal entries. Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)

The Ten-Column Work Sheet The ten-column work sheet has five amount sections: The Ten-Column Work Sheet The ten-column work sheet has five amount sections:  Trial Balance Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)  Adjustments  Adjusted Trial Balance  Income statement  Balance Sheet

Completing the Trial Balance Section  To prepare the trial balance, the number and name of each account in the general ledger are entered on the work sheet in the Account Number and Account Name columns.  The accounts are listed in the order in which they appear in the general ledger.  To prepare the trial balance, the number and name of each account in the general ledger are entered on the work sheet in the Account Number and Account Name columns.  The accounts are listed in the order in which they appear in the general ledger. Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)

Completing the Trial Balance Section (cont'd.)  The balance of each account is entered in the appropriate column.  The Trial Balance Debit and Credit columns are ruled, totaled, and proved.  Then a double rule is drawn across both columns.  The balance of each account is entered in the appropriate column.  The Trial Balance Debit and Credit columns are ruled, totaled, and proved.  Then a double rule is drawn across both columns. Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)

Calculating Adjustments  Not all changes in account balances are the result of daily business transactions. Some changes result from the internal operations of the business or from the passage of time.  An adjustment is an amount that is added to or subtracted from an account balance to bring that balance up-to-date.  Not all changes in account balances are the result of daily business transactions. Some changes result from the internal operations of the business or from the passage of time.  An adjustment is an amount that is added to or subtracted from an account balance to bring that balance up-to-date. Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)

Determining the Adjustments Needed If the balance shown for an account is not up-to-date as of the last day of the fiscal period, then that account balance must be adjusted. Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)

Adjusting the Merchandise Inventory Account When calculating the adjustment for Merchandise Inventory, you need to know: Adjusting the Merchandise Inventory Account When calculating the adjustment for Merchandise Inventory, you need to know:  the Merchandise Inventory account balance  the physical inventory amount  the Merchandise Inventory account balance  the physical inventory amount Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)

Adjusting the Merchandise Inventory Account (cont'd.) Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.) Adjustment To adjust the Merchandise Inventory account to reflect the physical inventory amount ($81,385), the following transaction is recorded. ANALYSIS Identify1.The accounts Merchandise Inventory and Income Summary are affected. Classify2. Merchandise Inventory is an asset account (permanent). Income Summary is a stockholder’s equity account. + / –3.Merchandise Inventory is decreased by $3,536. This amount is transferred to Income Summary.

Adjusting the Merchandise Inventory Account (cont'd.) Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.) Adjustment (cont'd.) To adjust the Merchandise Inventory account to reflect the physical inventory amount ($81,385), the following transaction is recorded. DEBIT-CREDIT RULE 4.To transfer the decrease in Merchandise Inventory, debit Income Summary for $3, Decreases to asset accounts are recorded as credits. Credit Merchandise Inventory for $3,536.

Adjusting the Merchandise Inventory Account (cont'd.) Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.) Adjustment (cont'd.) To adjust the Merchandise Inventory account to reflect the physical inventory amount ($81,385), the following transaction is recorded. T ACCOUNTS 6. IncomeMerchandise SummaryInventory Credit Debit + 3,536 Credit – 3,536 Debit +

Entering the Adjustment for Merchandise Inventory on the Work Sheet Adjustments are entered in the Adjustments columns of the work sheet. The debit and credit parts of each adjustment are given a unique label. The label consists of a small letter in parentheses and is placed just above and to the left of the adjustment amounts. Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)

Entering the Adjustment for Merchandise Inventory on the Work Sheet (cont'd.) Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)

Check Your Understanding What would you do if the Debit and Credit columns of the Trial Balance section of the work sheet were not equal? Section 1Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)