LESSON 6-2Planning Adjusting Entries on

a Work Sheet

Objectives

•Define Accounting terms related to a work sheet for a services business organization organized as a proprietorship.

•Identify accounting concepts and practices related to a work sheet for a service business organized as a proprietorship.

• Plan Adjustments for supplies and prepaid insurance.

Question for YOU!How have we accounted for

supplies up to this point?

Answer: We have increased the asset account, Supplies, when we purchase supplies.

We have NOT recorded the use of supplies. Today we will stress that if this continues, the balance in the supplies account will get larger and larger, even though supplies are being used each period.

New VOCAB TERM

ADJUSTMENTS: changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period. (p. 157)

Today’s lesson will discuss how to analyze adjustments for supplies and prepaid insurance.

Don’t look too excited!

Lesson 6.2The concept Matching Expenses

with Revenue means that amounts that helped earn revenue for a period must be reported as expenses in the same period.

Again, Today we are going to look how adjustments are made for supplies and insurance.

These adjustments will be planned on the work sheet.

Example (Supplies)

A Company starts the accounting period with two boxes of envelopes

Three additional boxes are purchased during the period.

If the company uses four boxes of envelopes, the

matching concept requires that the cost of the four boxes to be included with expenses for the period. The cost of the

one remaining box must be listed as an asset, Supplies.

Good HabitsYou should establish the habit of asking

the four questions to analyze each adjustment.

1.What is the balance of Supplies?

2.What should the balance be for this account?

3.What must be done to connect the account balance?

4.What adjustment is made?

Good HabitsThe amount of the adjustment is

the amount of supplies used.

This amount will also be the balance of Supplies Expense after the adjusting entry.

After the adjusting entry, the balance in the asset account, Supplies, is the cost of the supplies still on hand.

There are Three Steps for a Supplies Adjustment on a work sheet

LESSON 6-2 9

SUPPLIES ADJUSTMENT ON A WORK SHEET

1

2

page 158

3

1. Write the debit amount.

2. Write the credit amount.

3. Label the two parts of this adjustment.

SUPPLIES ADJUSTMENT ON A WORK SHEET

Supplies Account Balance – Supplies on Hand= Supplies Used

$1025.00 - $310.00 = $715.00

LESSON 6-2 11

PREPAID INSURANCE ADJUSTMENT

ON A WORK SHEETpage 159

1

23

1. Write the debit amount.

2. Write the credit amount.

3. Label the two parts of this adjustment.

PREPAID INSURANCE ADJUSTMENT

ON A WORK SHEET

Prepaid Insurance Balance – Insurance Coverage Remaining (Unused) = Insurance Coverage Used

$1200.00 - $1100.00 = $100.00

PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET

• Reminder: If Debits equal Credits for each adjustment, the total debits and total credits in the Adjustments

columns must also equal.

• There are three steps for proving the Adjustments columns of a work

sheet….

LESSON 6-2 14

PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET page 160

3. Rule double lines.

2. Add both the Adjustments Debit and Credit columns. Write each column’s total.

1. Rule a single line.

1

3

2

LESSON 6-2 15

PREPARING A WORK SHEETpage

160 C

1. Write the heading.

2. Record the trial balance.

3. Record the supplies adjustment.

4. Record the prepaid insurance adjustment.

5. Prove the Adjustments columns.

6. Extend all balance sheet account balances.

7. Extend all income statement account balances.

8. Calculate and record the net income (or net loss).

9. Total and rule the Income Statement and Balance Sheet columns.

LESSON 6-2 16

LESSON 6-2 17

1

LESSON 6-2 18

(b) 10000

4

(b) 10000(a) 71500

(a) 71500

3

4964001000015000

11000

10000102500120000

200005000

50000062500

35650021300

280030000

881500 881500 81500 81500 146600 356500 734900 525000

356500 734900

49640010000150001000031000

11000020000

5000500000

62500

6

11000

21300

280030000

356500

10000

71500

7

209900 209900Net Income 8

9

1

2

5

356500 734900

LESSON 6-2 19

TERM REVIEWAdjustments- changes recorded on a work sheet

to update general ledger accounts at the end of a fiscal period. (p. 157)

page 161

To do:APLIA 6.2

Work Together and On Your OwnApplication Problem

Check Clarity for any missing assignments past due!