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

2. The Accounting Cycle Business transactions Book of original entry1
Book of
original entry
2 Journal
Book of
final entry
3 Ledger
Worksheet 5
Trial balance 4 4

3. The Accounting Cycle Worksheet Trial balance Adjustments Adjusted
Income
statement
Balance
sheet
Income
statement
Statement of
owner’s equity 6
Financial Statements
Balance
sheet

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

5. Learning Unit 4-1 (Preparing the Worksheet)
The worksheet is not a formal report.
Correct heading information is used.
It is used to facilitate the preparation of
adjusting entries and financial statements.

6. Learning Unit 4-1 (Preparing the Worksheet)
Worksheet Sections
The trial balance
The adjustments
The adjusted trial balance
Income
statement
Balance
sheet

7. Learning Unit 4-1 (Preparing the Worksheet)
Account Titles
Trial Balance
Dr. Cr.
Adjustments
Dr. Cr.
Adj. Trial Bal.
Dr. Cr.
Cash, Accts. Rec.
Office Supplies
Prepaid Rent
Equipment
Accounts Payable
B. Clark, Capital
B. Clark, Withdrawals
Fees
Salaries Expense
Other Expenses
Office Supplies Expense
Rent Expense
Depreciation Expense
Accum. Depreciation
Salaries Payable
Totals
Net income
11,155
600
1,200
6,000
3,350
10,000
625
8,000
1,300
470
21,350 21,350

8. Learning Unit 4-1 (Preparing the Worksheet)
Assets must be adjusted to show
amounts used or allocated to periods.
Supplies used
Prepaid rent expired
Depreciation
Salaries incurred 7

9. Learning Unit 4-1 (Preparing the Worksheet)
Expenses incurred must be recorded in the
correct period before the period closes.
What are examples?
Supplies used
Prepaid rent expired

10. Learning Unit 4-1 (Preparing the Worksheet)
Depreciation is a unique adjustment.
Accounting
period

11. Learning Unit 4-1 (Preparing the Worksheet)
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?

12. Learning Unit 4-1 (Preparing the Worksheet)
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 (Preparing the Worksheet)
Cost of equipment $6,000
Less: Estimated residual value –1,200
Depreciable base $4,800
Estimated useful life years
(Cost – Residual value) ÷ Estimated useful life
($6,000 – $1,200) ÷ 5 = $960
$960 ÷ 12 = $80 per month

14. Learning Unit 4-1 (Preparing the Worksheet)
Clark’s Word Processing Services
Balance Sheet
May 31, 200x
Word processing equipment $6,000
Less: Accumulated depreciation
$5,920
Book value

15. Learning Unit 4-1 (Preparing the Worksheet)
Clark’s Word Processing Services
paid $1,300 in office salaries.
The last salary checks for the
month were paid on May 27.
John Murray worked for Clark on
May 28, 29, 30, and 31, but his next
pay check is not due until June 3.

16. Learning Unit 4-1 (Preparing the Worksheet)
Is John Murray’s earnings of
$350 an expense for May?
Yes
Office Salary Expense
1,300
350

17. Learning Unit 4-1 (Preparing the Worksheet)
Account Titles
Trial Balance
Dr. Cr.
Adjustments
Dr. Cr.
Adj. Trial Bal.
Dr. Cr.
Cash, Accts. Rec.
Office Supplies
Prepaid Rent
Equipment
Accounts Payable
B. Clark, Capital
B. Clark, Withdrawals
Fees
Salaries Expense
Other Expenses
Office Supplies Expense
Rent Expense
Depreciation Expense
Accum. Depreciation
Salaries Payable
Totals
Net income
11,155
600
1,200
6,000
3,350
10,000
625
8,000
1,300
470
21,350 21,350
(a) 500
(b) 400
(d) 350
(c) 80

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

19. Adjustments Example What are the adjusting entries for supplies?
Journal: Debit Credit
Supplies Expense xxx
Supplies (record correct amounts) xxx
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.

20. Adjusting entries for depreciation.
Adjustments Example
Adjusting entries for depreciation.
Journal: Debit Credit
Depreciation Expense xxx
Accum. Depr. Equipment xxx
To record the proper amounts for all relevant
asset accounts

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

22. Adjustments Example Account Titles Trial Balance Dr. Cr. Adjustments
Adj. Trial Bal.
Dr. Cr.
Cash, Accts. Rec.
Office Supplies
Prepaid Rent
Equipment
Accounts Payable
B. Clark, Capital
B. Clark, Withdrawals
Fees
Salaries Expense
Other Expenses
Office Supplies Expense
Rent Expense
Depreciation Expense
Accum. Depreciation
Salaries Payable
Totals
Net income
11,155
600
1,200
6,000
3,350
10,000
625
8,000
1,300
470
21,350 21,350
(a) 500
(b) 400
(d) 350
(c) 80
1, ,330
11,155
100
800
6,000
3,350
10,000
625
8,000
1,650
470
500
400 80
350
21,780 21,780

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

24. The Income Statement and Balance Sheet Section
11,155
100
800
6,000
3,350
10,000
625
8,000
1,650
470
500
400 80
350
21,780 21,780
Adj. Trial Bal.
Dr. Cr.
3, ,000
4,900
Inc. Statement
18,680 13,780
Balance Sheet
Cash, Accts. Rec.
Office Supplies
Prepaid Rent
Equipment
Accounts Payable
B. Clark, Capital
B. Clark, Withdrawals
Fees
Salaries Expense
Other Expenses
Office Supplies Expense
Rent Expense
Depreciation Expense
Accum. Depreciation
Salaries Payable
Totals
Net income
Account Titles

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

26. Learning Unit 4-2 (Preparing the Financial Statements)
Income Statement
It reports revenues and expenses.
Statement of Owner's Equity
Beginning capital balance from the
balance sheet columns – Withdrawals
– Loss, or + Net income = Ending capital balance

27. Learning Unit 4-2 (Preparing the Financial Statements)
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.

28. End of Chapter 4