0. Chapter 18 Adjustments and the Ten-Column Work Sheet
What You’ll Learn
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.
Define the accounting terms introduced in this chapter.
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

1. Chapter 18, Section 1 Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
What Do You Think?
Why is it important to have up-to-date balances at period end?
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

2. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
Main Idea
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.
You Will Learn
the purpose of the ten-column work sheet.
how to use the ten-column work sheet for adjustments.
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

3. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
Key Terms
adjustment
beginning inventory
ending inventory
physical inventory
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

4. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
Completing End-of-Period Work
In addition to account totals, managers, stockholders, and creditors need to know net income and the value of stockholders’ equity to make sound business decisions.
In this chapter, you will learn how to prepare a ten-column work sheet for a merchandising business.
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

5. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
The Ten-Column Work Sheet
The ten-column work sheet is prepared in the same way as the six-column work sheet, but the ten-column work sheet has five amount sections:
Trial Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

6. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
Completing the Trial Balance Section
A trial balance is used to prove the general ledger. Follow these steps to prepare the trial balance:
Enter the account name and number for each account in the Account Name and 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.
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

7. The Trial Balance section of the Work Sheet
Completing the Trial Balance Section
SECTION 18.1
The Trial Balance section of the Work Sheet
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

8. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
Calculating Adjustments
Some changes in account balances result from internal business operations or the passage of time. Examples are Supplies and Prepaid Insurance.
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

9. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
Permanent Accounts and Temporary Accounts
A change in an account balance caused by the internal operations or the passage of time is recorded through an adjustment. At the end of the period, adjustments are made to transfer the costs of assets consumed from asset accounts to the appropriate expense accounts.
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

10. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
Determining the Adjustments Needed
If a balance is not up to date as of the last day of the fiscal period, it must be adjusted.
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

11. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
Adjusting the Merchandise Inventory Account
Beginning inventory is the merchandise a business has on hand at the beginning of a period. Ending inventory is the merchandise on hand at the end of a period. The asset account Merchandise Inventory’s balance changes only when a physical inventory, an actual count of all merchandise on hand and available for sale, is taken.
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

12. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
Calculating the Adjustment for Merchandise Inventory
When calculating the adjustment for Merchandise Inventory, you need to know
the account’s balance, and
the physical inventory amount.
Purchases and sales during the period will decrease the account balance. The reduction in inventory is recorded as an adjustment in the accounting records.
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

13. Calculating the Adjustment for Merchandise Inventory
SECTION 18.1
Calculating the Adjustment for Merchandise Inventory
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

14. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
Entering the Adjustment for Merchandise Inventory on the Work Sheet
Adjustments are entered in the Adjustments columns of the work sheet. To do this, follow these steps:
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.
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

15. Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory
SECTION 18.1
Key Terms Review
adjustment
An amount that is added to or subtracted from an account balance to bring that balance up to date.
beginning inventory
The merchandise a business has on hand at the beginning of a period.
ending inventory
The merchandise a business has on hand at the end of a period.
physical inventory
An actual count of all merchandise on hand and available for sale.
Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.