Learning Objective 1 Adjustments: prepaid rent, office supplies, depreciation on equipment, and accrued salaries © 2010 Prentice Hall Business Publishing,

Learning Objective 1Learning Objective 1

Adjustments: prepaid rent, office supplies, depreciation on equipment, and accrued salaries

© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

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Steps in Accounting CycleSteps in Accounting Cycle


Business transactions

occur

Analyze and record

transactions in journal

Post information from journal to

ledger

Prepare a Worksheet

Prepare Financial

Statements

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Preparing a WorksheetPreparing a WorksheetWhat is it?

◦ A columnar device used to aid accountants in completing the accounting cycle

◦ Internal document – not a formal financial statement

Why is it prepared?◦ Used to organize and check data for errors

before preparing financial statementsHas 5 sections

◦ Trial Balance◦ Adjustments◦ Adjusted Trial Balance◦ Income Statement◦ Balance Sheet© 2010 Prentice Hall Business

Publishing, College Accounting: A Practical Approach, 11e by Slater

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Adjusting EntriesAdjusting EntriesInternal transactionsBring accounts up-to-dateRecognize revenues and

expenses in the proper accounting period


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Items that Need to be Items that Need to be AdjustedAdjustedOffice SuppliesPrepaid Items (Rent, Advertising)Equipment (Depreciation,

Accumulated Depreciation)Expenses (Salaries, Rent,

Supplies)


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Examples of Prepaid Examples of Prepaid AdjustmentsAdjustmentsPrepaid Rent at beginning of

month = $3,000 (covers 6 months)

End of month 1adjustment of $500 = ($3,000/6 months) Rent Expense Prepaid Rent

500 3,000 Debit 500

Credit


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Examples of AdjustmentsExamples of AdjustmentsSupplies on hand at the beginning of month = $4,000

Supplies on hand at the end of month = $1,200

Calculate the difference between the beginning and ending balances

$4,000 - $1,200 = $2,800- Supplies used Supplies Expense Supplies

2800 4,000 2800 Debit Credit


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Adjusting for ItemsAdjusting for Items


Supplies

Jan 5 Purchased supplies for $800800Jan 20 Purchased supplies for $600600

1,400Supplies available

for use during January

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Adjusting for ItemsAdjusting for Items


1,1001,100

Supplies available $1,400Supplies on hand 300Supplies used $1,100

Supplies

Jan 31 Supplies on hand, $300

800600

1,400

Supplies Expense

300

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1,100 1,100

________

1,100

Adjusting for Long-Term Adjusting for Long-Term AssetsAssets

Depreciation – Allocating the cost of the asset over its useful life

Straight-line depreciation

Cost – Residual ValueEstimated Years of Usefulness


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Examples of AdjustmentsExamples of AdjustmentsCompany bought a piece of equipment

that has a cost of $50,000, no residual value and a useful life of 10 years

Formula for calculating depreciation:(Cost – Residual Value) ÷ Est. Usefulness in Months($50,000 – 0) ÷ 120 (10 x 12) = $417

Depreciation Expense Accumulated Depreciation

417 417

Debit Credit


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Equipment

Jan 1 Purchased equipment for $14,000. It is estimated that the equipment will be used for 5 years, at which time it will be worth $800.

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14,000



Determine depreciation for the month of January.

Cost – Residual ValueEstimated Years of Usefulness

$14,000 – 800 5 years

= $2,640

For one year: $2,640 / 12 months = $220

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Equipment

14,000

Accumulated Depreciation,Equipment

Depreciation Expense, Equipment

Depreciation for one month: $2,640 / 12 months = $220

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220 220



Depreciation Expense,Equipment

220

Expense shown on income statement

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Balance SheetJanuary 31, 200X

AssetsCashEquipment $14,000Less accumulateddepreciation 220 13,780

Historical cost of $14,000does not change

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Book Value:Unused amount to be depreciated in

future periods



Accumulated Depreciation,Equipment

220

•Contra asset account•Shown on Balance Sheet•Accumulates depreciation recognized over entire life of asset

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Balance SheetFebruary 28, 200X

AssetsCash $xxxx…….. xxxxEquipment $14,000Less accumulateddepreciation 440 13,560

Increases eachaccounting period

Book Valuedecreases

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Adjusting for Accrued Adjusting for Accrued ExpensesExpenses

JANUARYS M T W T F S

1 2 3 4 5 6

7 8 9 101

11

21

3

141

51

61

71

81

92

0

212

22

32

42

52

62

7

282

93

03

1


Employee salaries are $100 a day for a five day work week which runs from Monday thru Friday. Employees are paid every Friday.

Salaries Paid (Cash)

Jan 5 500Jan 12 500Jan 19 500Jan 26 500

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Employees worked 3 days more in January, but have not yet been paid.

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JANUARYS M T W T F S

1 2 3 4 5 6

7 8 9 101

11

21

3

141

51

61

71

81

92

0

212

22

32

42

52

62

7

282

93

03

1

Salaries Expense

Jan 5 500Jan 12 500Jan 19 500Jan 26 500 Jan 31 300


Employees worked 3 days more in January, but will not be paid until February 2.


Salaries Payable

3 days X $100 = $300

300 Jan 31

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Salaries Expense

Jan 5 500Jan 12 500Jan 19 500Jan 26 500 Jan 31 300 2,300

Worksheet – Problem 4B-3Worksheet – Problem 4B-3


Worksheet

Trial Balance Adjustments Adjusted T/B Income Statement Balance SheetAccount Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

Cash 3,920 Prepaid Insurance 3,288 Moving Supplies 1,400 Moving Truck 10,658 Accum Depr, Truck 3,660 Accounts Payable 1,312 K. Hoff, Capital 17,482 K. Hoff, Withdrawals 4,240 Revenue From Moving 8,162 Wages Expense 5,712 Rent Expense 1,080 Advertising Expense 318 Totals 30,616 30,616

Kevin's Moving Co.

October 31, 200X

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Documents

Learning Objective 1 Adjustments: prepaid rent, office supplies, depreciation on equipment, and accrued salaries © 2010 Prentice Hall Business Publishing,