2. The Adjustment Process Accountants need to ensure that the statements they produce are: Up to Date, Accurate, Consistent Adjustments are necessary to ensure Accounts are brought up to date All late transactions are taken into account All calculations are correct All GAAPs have been complied with

3. The Adjustment Process During the course of the fiscal period, things are allowed to get out of date Adjusting entries get everything up-to-date and accurate again Why allowed to go inaccurate? Saves time, money, effort

4. The Adjustment Process We will look at the adjusting entries for three main areas Supplies Prepaid Expenses Late Arriving Invoices

5. Adjusting Entries Adjustment #1: Supplies The Supplies balance shows the total supplies purchased in the year

6. What is the Balance? What the balance is

7. What Should The Balance Be? What the balance should be? What the balance “should be” is determined from someone counting the supplies that remain in the business at the end of the year

8. The Adjustment The required adjustment

9. Introducing a New Account What the balance is The income statement account related to Supplies is shown above The accounting clerk has not used this account during the year

10. Expense: What Should the Balance Be? What the balance should be What the balance “should be” is equal to the amount of supplies “used up” during the year

11. What the Adjustment Would Be The required adjustment

12. The adjusting entry as it would appear in the general journal What that Looks Like in the Journal

13. Adjusting Entries The Prepaid Insurance balance shows the total cost of insurance bought in the year Adjustment #2: Prepaid Expenses

14. What is the Balance? What the balance is

15. What Should the Balance Be? What the balance should be What the balance “should be” is determined from someone calculating the portion of the insurance policy that is “unexpired” or “not used up yet, but paid for”

16. How did you Get $1200? An Insurance policy was purchased on September 1 st for one year. The fiscal period expires Dec. 31. As of Dec. 31, how many months of insurance have been used ? - 4 months have been used Each month costs: $1800 / 12mo. = $150 4 months have been used: $150*4 = $600

17. The Adjustment The required adjustment

18. Introducing Your 2 nd New Account What the balance is The income statement account related to Prepaid Insurance is shown above The accounting clerk has not used this account during the year

19. Expense: What Should the Balance Be? What the balance should be What the balance “should be” is the amount of the insurance policy that has expired at year’s end

20. What the Adjustment Should Be? The required adjustment

21. What it Looks Like in the Journal The adjusting entry for insurance as it would appear in the general journal

22. Adjusting Entries Adjustment #3: Late Arriving Invoices The Accounts Payable balance does not include two invoices that arrived late

23. Two late invoices have arrived $212 for the Telephone Bill $315 for the Utilities Bill

24. What Should the Balance Be? Simply Input the missing invoices And calculate the adjusted balance

25. Expense: What is the Balance?

26. The Adjustments

27. What that Looks Like in the Journal The adjusting entry for late invoices as it would appear in the general journal

28. The adjusting entries have brought balance sheet accounts up to date Summary 1 Adjusting Entries—Summary Balance Sheet

29. And have recorded expenses in related accounts on the income statement Summary 2 Adjusting Entries—Summary Balance SheetIncome Statement

30. Homework PAGE 218 in text – Questions #1-2 STUDY! Quiz tomorrow on the worksheet & balance sheet A couple questions on today’s lesson