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Adjustments transfer the cost of “used up” assets to expense accounts
Adjustments transfer the cost of “used up” assets to expense accounts. Adjustments for changes in merchandise inventory are made directly to the Income Summary account. Home Glencoe Accounting Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Describe the parts of a ten-column work sheet.
Generate trial balances and end-of-period adjustments. Determine which general ledger accounts to adjust. Calculate the adjustments. Prepare a ten-column work sheet. Journalize the adjustments. Home Glencoe Accounting Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Key Terms adjustment beginning inventory ending inventory
Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 Key Terms adjustment beginning inventory ending inventory physical inventory Home Glencoe Accounting

Completing End-of- Period Work
Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 Managers, stockholders, and creditors need to know net income and the value of stockholders’ equity to make sound business decisions. Home Glencoe Accounting

The Ten-Column Work Sheet
Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 Trial Balance Adjustments Five amount sections in the ten-column work sheet Adjusted Trial Balance Income Statement Balance Sheet Home Glencoe Accounting

Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 Trial Balance Section Enter the account name and number for each account in the Account Name and Account Number columns. Enter the balance in the Debit or Credit column. Rule the Debit and Credit columns. If the Debit and Credit columns are proven, draw a double-rule line across both columns. See page 522 Home Glencoe Accounting

Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 At the end of the period, adjustments are made to transfer the costs of assets consumed from asset accounts to the appropriate expense accounts. adjustment An amount that is added to or subtracted from an account balance to bring that balance up to date. Home Glencoe Accounting

Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 If a balance is not up to date as of the last day of the fiscal period, it must be adjusted. Home Glencoe Accounting

Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 Three Types of Inventory Beginning Inventory Ending Inventory Physical Inventory beginning inventory The merchandise a business has on hand at the beginning of a period. Home Glencoe Accounting

Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 Three Types of Inventory Beginning Inventory Ending Inventory Physical Inventory ending inventory The merchandise a business has on hand at the end of a period. Home Glencoe Accounting

Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 Three Types of Inventory Beginning Inventory Ending Inventory Physical Inventory physical inventory An actual count of all merchandise on hand and available for sale. Home Glencoe Accounting

Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 When calculating the adjustment for Merchandise Inventory, you need to know The account’s balance The physical inventory amount Home Glencoe Accounting

Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 Adjusting the Merchandise Inventory Account Adjustment To adjust the Merchandise Inventory account to reflect the physical inventory amount ($81,385), the following transaction is recorded. See pages 524–525 Home Glencoe Accounting

Identifying Accounts to be Adjusted and Adjusting Merchandise Inventory Section 18.1 Recording the Adjustment for Merchandise Inventory 1 2 In the Adjustments Debit column, enter the debit amount of the adjustment on the Income Summary line. In the Adjustments Credit column, enter the credit amount of the adjustment on the Merchandise Inventory line. Home Glencoe Accounting

Key Term prepaid expense Section 18.2 Home
Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax Section 18.2 Key Term prepaid expense Home Glencoe Accounting

Adjusting the Supplies Account
Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax Section 18.2 A physical inventory is taken at the end of the period to make an adjustment to the Supplies account. As supplies are used, they become expenses of the business. Home Glencoe Accounting

Adjusting the Supplies Account
Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax Section 18.2 Adjusting the Supplies Account Adjustment Record the adjustment for supplies. See pages 527–528 Home Glencoe Accounting

Adjusting the Prepaid Insurance Account
Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax Section 18.2 Insurance premiums are an example of a prepaid expense. prepaid expense An expense paid in advance. Home Glencoe Accounting

Adjusting the Prepaid Insurance Account
Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax Section 18.2 Adjusting the Prepaid Insurance Account Adjustment Record the adjustment for the expiration of one-half month’s insurance coverage. See pages 528–529 Home Glencoe Accounting

Adjusting the Federal Corporate Income Tax Accounts
Adjusting Supplies, Prepaid Insurance, and Federal Corporate Income Tax Section 18.2 Additional tax may need to be paid. When the exact amount of federal corporate income tax is determined: The company may qualify for a refund. Home Glencoe Accounting

Key Terms adjusting entries Section 18.3 Home
Completing the Work Sheet and Journalizing and Posting the Adjusting Entries Section 18.3 Key Terms adjusting entries Home Glencoe Accounting

Extending Work Sheet Balances
Completing the Work Sheet and Journalizing and Posting the Adjusting Entries Section 18.3 The amounts for each account must be extended to or carried over to these sections: The Adjusted Trial Balance The Income Statement The Balance Sheet Home Glencoe Accounting

Completing the Work Sheet and Journalizing and Posting the Adjusting Entries Section 18.3 The balance of each Trial Balance account is combined with the adjustments in the Adjustments section. The new balance is entered in the appropriate Adjusted Trial Balance column. If there is no adjustment, the balance is transferred to the same column in the Adjusted Trial Balance section. Home Glencoe Accounting

Completing the Work Sheet and Journalizing and Posting the Adjusting Entries Section 18.3 The Income Statement section, containing temporary account balances Each account in the Adjusted Trial Balance section is extended to one of the following sections: The Balance Sheet section, containing permanent account balances Home Glencoe Accounting

Journalizing and Posting Adjusting Entries
Completing the Work Sheet and Journalizing and Posting the Adjusting Entries Section 18.3 Adjusting entries come from the Adjustments section of the work sheet. adjusting entries Journal entries that update the general ledger accounts at the end of a period. Home Glencoe Accounting

Completing the Work Sheet and Journalizing and Posting the Adjusting Entries Section 18.3 Entries Recorded in the Adjustments Column Adjusting Merchandise Inventory Adjusting Supplies Adjusting Insurance Adjusting Income Tax Home Glencoe Accounting

Completing the Work Sheet and Journalizing and Posting the Adjusting Entries Section 18.3 Adjusting entries are recorded in the general journal and then posted to the general ledger accounts. This will cause the general ledger account balances to agree with the Income Statement and Balance Sheet sections. Home Glencoe Accounting

Completing the Work Sheet and Journalizing and Posting the Adjusting Entries Section 18.3 Posting Adjusting Entries to the General Ledger See page 538 Home Glencoe Accounting

Completing the Work Sheet and Journalizing and Posting the Adjusting Entries Section 18.3 Posting Adjusting Entries to the General Ledger Home See pages 537–538 Glencoe Accounting

Completing the Work Sheet and Journalizing and Posting the Adjusting Entries Section 18.3 Posting Adjusting Entries to the General Ledger See page 539 Home Glencoe Accounting

Question 1 After taking a physical inventory, you determined that the business has $132,755 of inventory on hand. The general ledger shows the Merchandise Inventory account with a balance of $139,400. What steps are needed to record the adjusting entry? Step 1: The accounts Merchandise Inventory and Income Summary are affected. Step 2: Merchandise Inventory is an asset account. Income Summary is a stockholder’s equity account. Step 3: Merchandise Inventory is decreased by $6,645 ($139,400 - $132,755). This amount is transferred to Income Summary. Step 4: To transfer the decrease in Merchandise Inventory, debit Income Summary for $6,645 Step 5: Decreases in asset accounts are recorded as credits. Credit Merchandise Inventory for $6,645. Home Glencoe Accounting

Question 2 Given the following information, determine what adjustments need to be made to the accounts. Indicate the amounts of the adjustments. Home Glencoe Accounting

The adjustments that need to be made are shown below:
Question 2 The adjustments that need to be made are shown below: Home Glencoe Accounting

Question 3 Explain the matching principle and why it is important to accounting. The matching principle requires recording revenues in the period they are earned and recording expenses that were incurred to make those revenues in the same period. This may not be when expenses or revenues are paid or collected. By matching expenses and revenues, the matching principle provides an accurate measure of net income. For example, if you pay for (prepay) six months of insurance on one date, that expense is spread over the six months in which the policy is in effect. The cost of each month’s portion of the policy’s premium must be expensed in that month (1/6 of the total cost) so that records accurately reflect expenses. Having this information allows comparisons to be made for similar periods. Home Glencoe Accounting

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