1. Section 1 Identifying Accounts To Be Adjusted and Adjusting
Chapter 18 $
Adjustments and the Ten-Column Work Sheet
Making Accounting Relevant
Financial data must be communicated properly before it can be used effectively. $ $
Section 1 Identifying Accounts
To Be Adjusted and Adjusting
Merchandise Inventory $

2. $ $ $ $ Why It’s Important Key Terms Chapter 18 adjustment
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)
Chapter 18 $
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. $ $ $
Key Terms
adjustment
beginning inventory
ending inventory
physical inventory

3. $ $ $ $ Completing End-of-Period Work Chapter 18
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)
Chapter 18 $
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. $ $ $

4. $ $ $ $ The Ten-Column Work Sheet Chapter 18
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)
Chapter 18 $
The Ten-Column Work Sheet
The ten-column work sheet has five amount sections: $
Trial Balance $
Adjustments
Adjusted Trial Balance $
Income statement
Balance Sheet

6. $ $ $ $ Completing the Trial Balance Section Chapter 18
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)
Chapter 18 $
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. $ $

7. $ $ $ $ Completing the Trial Balance Section (cont'd.) Chapter 18
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)
Chapter 18 $
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. $ $

8. $ $ $ $ Calculating Adjustments Chapter 18
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)
Chapter 18 $
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. $ $ $

9. $ $ $ $ Determining the Adjustments Needed Chapter 18
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)
Chapter 18 $
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. $ $

10. $ $ $ $ Adjusting the Merchandise Inventory Account Chapter 18
Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)
Chapter 18 $
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 $

11. Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)
Chapter 18 $
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. $ $

12. Section 1 Identifying Accounts To Be Adjusted and Adjusting Merchandise Inventory (cont'd.)
Chapter 18 $
Entering the Adjustment for Merchandise Inventory on the Work Sheet (cont'd.) $
To adjust the Merchandise Inventory account to reflect the physical inventory amount ($81,385), the following transaction is recorded. $ $

13. 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. $ $

14. $ $ $ $ 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. $ $ $

15. $ $ $ $ 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 $

16. $ $ $ $ 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 $

17. Chapter 18
Section 3 Completing the Work Sheet and Journalizing and Posting the Adjusting Entries $ $
What You’ll Learn
How to complete the Adjusted Trial Balance section.
How to extend amounts to the Income Statement and Balance sheet sections.
How to report the net income or net loss for the period.
How to journalize the adjusting entries in the general journal.
How to post the adjusting entries to the general ledger. $ $

18. $ $ $ $ Why It’s Important Chapter 18
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (cont'd.)
Chapter 18 $
Why It’s Important
The work sheet is the source of information for journalizing the adjusting entries and preparing the financial statements. $ $ $

19. $ $ $ $ Completing the Adjusted Trial Balance Section Chapter 18
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (cont'd.)
Chapter 18 $
Completing the Adjusted Trial Balance Section $
Once the adjustments are entered in the Adjustments section of the work sheet, it is important to prove that the accounts are still in balance. This is done by completing an adjusted trial balance. $ $

20. Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (cont'd.)
Chapter 18 $
Extending Amounts to the Balance Sheet and Income Statement Sections $
Beginning with line 1, each account balance in the Adjusted Trial Balance section is extended to the appropriate column of either the Balance Sheet section or the Income Statement section. $ $

21. $ $ $ $ Completing the Work Sheet Chapter 18
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (cont'd.)
Chapter 18 $
Completing the Work Sheet
After all amounts are extended to the Balance Sheet and Income Statement sections, a single rule is drawn across the columns in these sections.
All four columns are then totaled.
The difference between the two column totals in each section is the amount of net income (or net loss) for the period. $ $ $

22. $ $ $ $ Completing the Work Sheet (cont'd.) Chapter 18
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (cont'd.)
Chapter 18 $
Completing the Work Sheet (cont'd.) $
After the net income (or net loss) is recorded, the columns in the Balance Sheet and Income Statement sections are ruled and totaled.
A double rule is drawn across all four columns. $ $

23. $ $ $ $ Journalizing Adjustments Chapter 18
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (cont'd.)
Chapter 18 $
Journalizing Adjustments
The journal entries that update the general ledger accounts at the end of a period are called adjusting entries. The source of information for journalizing the adjusting entries is the Adjustments section of the work sheet. $ $ $

24. $ $ $ $ Journalizing Adjustments (cont'd.) Chapter 18
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (cont'd.)
Chapter 18 $
Journalizing Adjustments (cont'd.) $ $ $

25. $ $ $ $ Posting Adjusting Entries to the General Ledger Chapter 18
Section 3 Completing the Work Sheet & Journalizing & Posting the Adjusting Entries (cont'd.)
Chapter 18 $
Posting Adjusting Entries to the General Ledger $
After the adjusting entries are recorded in the general journal, they are posted to the general ledger accounts.
Once the adjusting entries are posted, the general ledger accounts are up-to-date. $ $