Chapter 9 Recording Adjusting and Closing Entries

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Transcription:

Chapter 9 Recording Adjusting and Closing Entries

Fiscal Period Length of time for which a business reports and summarizes financial information Concept: Accounting Period Cycle: reporting changes in financial info over a specific time Can begin on any date Most business begin on 1 st day of month Can be one year, one month, three months

Matching Expenses With Revenue The expense of doing business in a fiscal period Is matched to The revenue earned while doing business in a fiscal period How? Adjusting Entries Look at transparency and review why adjusting entries

Worksheet Used for four reasons: Summarize general ledger account balances to prove debits and credits equal Plan needed changes to general ledger accounts to bring balances up to date Separate general ledger account balances according to the financial statements they are used on Calculate net income or loss Not permanent record accountant tool

What happens after Work Sheet Work Sheet summarizes financial information Change in supplies Change in insurance Profit/Loss Account balances in general ledger After summarizing Work Sheet information is transferred to journal

Recording Adjusting Entries Information for adjusting entries is in worksheet Adjusting entries must be recorded in journal and posted to ledger to truly reflect changes in business (match expenses, adequate disclosure)

Worksheet Heading Name of company Worksheet For Month Ended..

Trial Balance columns Page 157 Account titles Account balances Totaled, ruled Debits = credits Trial balance: proof that all debits = all credits Taken from general ledger Listed in same order as chart of accounts All titles listed even if they do not have balance

Page 158 and 159 Prepare trial balance portion of work sheet 159 is homework

Adjustments Changes recorded on works sheet to update general ledger accounts at end of fiscal period Portion of assets used to earn revenue are expensed to the period of time that the revenue was earned within Adjustments made to asset and expense accounts Worksheet used to plan adjustments Look at book transparencies

Adjusting Entries Some accounts are assets that businesses have bought throughout the fiscal period i.e. supplies and prepaid insurance Some of those assets have been used Accounts must be adjusted for what has been used

Adjusting Entries Accounting Concept: Matching Expenses with Revenue Brings asset and expense accounts up to date Take supply inventory and find that there are $200 in supplies General Ledger says there are $400 in supplies Adjusting entry: credit supplies $200 and debit supplies expense $200 Supplies used are an expense of the business

PARTIAL WORK SHEET SHOWING ADJUSTMENTS These Adjustments Columns are the source for the journal s adjusting entries Lesson 17-1, page 423

Adjusting Entries Prepaid insurance is worth $600 on the day it is bought Each day that goes by, the insurance is worth less because we have used those insurance services Debit Insurance Expense and credit Prepaid Insurance for amount of expired insurance Amount depends on when insurance was bought and how many days have gone by

ADJUSTING ENTRIES RECORDED IN A 2 1 JOURNAL 5 3 4 6 1. Heading 4. Debit 2. Date 5. Account Credited 3. Account Debited 6. Credit Lesson 17-1, page 422

ADJUSTING ENTRY FOR MERCHANDISE INVENTORY BEFORE AFTER ADJUSTMENT Income Summary Adj. (a) 15,840.00 Merchandise Inventory Bal. 270,480.00 (New Bal. 254,640.00) Adj. (a) 15,840.00 Lesson 17-1, page 423

ADJUSTING ENTRY FOR OFFICE SUPPLIES INVENTORY Adj. (b) 4,730.00 BEFORE AFTER ADJUSTMENT Supplies Expense Office Supplies Expense Office Bal. 6,480.00 (New Bal. 1,750.00) Adj. (b) 4,730.00 Lesson 17-1, page 424

ADJUSTING ENTRY FOR STORE SUPPLIES INVENTORY Adj. (c) 3,910.00 BEFORE AFTER ADJUSTMENT Supplies Expense Store Supplies Expense Store Bal. 6,944.00 (New Bal. 3,034.00) Adj. (c) 3,910.00 Lesson 17-1, page 424

ADJUSTING ENTRY FOR PREPAID INSURANCE BEFORE AFTER ADJUSTMENT Insurance Expense Adj. (d) 3,170.00 Prepaid Insurance Bal. 5,800.00 (New Bal. 2,630.00) Adj. (d) 3,170.00 Lesson 17-1, page 424

Extending Balances on Worksheet Two financial statements are prepared at the end of each fiscal period: Balance sheet Reports balance of assets, liabilities, and worth on a specific date Income Statement Showing revenue and expenses for a period of time For Month Ended. Page 165 and 166 and 167and 168 (calculating net loss or profit)

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