College Accounting Chapter 5

5-1
Chapter
5
Adjustments and the
Worksheet
Section 1: The Worksheet
Section Objectives
1. Complete a trial balance on

a worksheet.
2. Prepare adjustments for

unrecorded business
transactions.
McGraw-Hill © 2009 The McGraw-Hill Companies, Inc. All rights reserved.

Objective 1 Complete a trial balance on a
worksheet
The worksheet has The worksheet also Each section has
an Account Name column has five sections. two columns.
JT’s Consulting Services

Worksheet
Month Ended December 31, 2010
TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STMT. BALANCE SHEET
ACCOUNT NAME
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
5-3
Complete the Trial Balance section in
four steps
1. Enter the general ledger account names.
2. Transfer the general ledger account balances to the Debit

and Credit columns of the Trial Balance section.
3. Total the Debit and Credit columns to prove that the trial
balance is in balance.
4. Place a double rule under each Trial Balance column to
show that the work in that column is complete.
5-4
Step 1: Enter the general ledger account names.

Step 1: Enter the general ledger account names.
Worksheet
ACCOUNT NAME
Carter Consulting Service
Worksheet
Cash Month Ended December 31, 2004
Accounts Receivable
TRIAL BALANCE ADJUSTMENTS ADJ. TRIAL BAL. INCOME STATEMENT BALANCE SHEET
Supplies
ACCOUNT NAME
Prepaid Rent
Cash
Equipment
Accum. Depr.—Equip. These four new accounts will
Accounts Payable
Jason Taylor, Cap.
be used for the adjustments.
Jason Taylor, Draw.
Fees Income
Salaries Expense
**If additional new expense accounts
Utilities Expense
Supplies Expense are needed in the adjustment process,
Rent Expense add them to the bottom of the
Depr. Exp.—Equip.
Totals
ACCOUNT NAME column.
5-5
Step 2: Transfer the general ledger account balances to
the Debit and Credit columns of the Trial Balance section.

Worksheet
ACCOUNT NAME
Cash 83,500
Accounts Rec.
Cash
ACCOUNT ____________________________ 101
ACCOUNT NO. ________
Supplies
Prepaid Rent BALANCE
Equipment POST
DATE DESCRIPTION REF. DEBIT CREDIT DEBIT CREDIT
Accum. Depr. 2010
Nov. 30 Bal. forward 64,400
65,000
Accounts Pay. Dec. 31 J2 26,000 91,000
J. Taylor, Cap. Dec. 31 J2 4,000 95,000

Dec. 31 J2 7,000 88,000
J. Taylor, Draw.
Dec. 31 J2 500 87,500
Dec. 31 J2 4,000 83,500
5-6
Step 3: Total the Debit and Credit columns to prove that
the trial balance is in balance.
ACCOUNT NAME
Cash 83,500
Accounts Receivable 5,000
Supplies
Step 4: Place a double rule under
3,000
Prepaid Rent 7,000
each Trial Balance column to show
Equipment 22,000 that the work in that column is
Accum. Depr.—Equip. complete.
Accounts Payable 7,000
Jason Taylor, Cap. 90,000
Jason Taylor, Draw. 4,000
Fees Income 35,000
Salaries Expense 7,000
Utilities Expense 500
Supplies Expense
Rent Expense
Depr. Exp.—Equip.
Totals 132,000 132,000
5-7
Objective 2 Prepare adjustments for unrecorded
business transactions
ACCOUNT NAME
Cash 83,500
Supplies 3,000
Prepaid Rent 7,000
Equipment 22,000
Accum. Depr.—Equip.
Fees Income 35,000 These adjusting entries are first
Salaries Expense 7,000 entered in the Adjustments
section of the worksheet.
Supplies Expense
Rent Expense
Depr. Exp.—Equip.
Totals 132,000 132,000
5-8
The Supplies Adjustment
JT’s Consulting Services began the month with $3,000 in supplies.

At the end of the month, $2,000 in supplies remained.
QUESTION:
What dollar amount of supplies was $3,000

used during the month? - 2,000
ANSWER:
$1,000
5-9
Worksheet
ACCOUNT NAME
Cash 83,500
Supplies 3,000 (a) 1,000
Prepaid Rent 7,000
Equipment 22,000
Fees Income 35,000
Supplies Expense (a) 1,000
Rent Expense
Depr. Exp.—Equip.
Totals 132,000 132,000
5-10
The Prepaid Adjustment
On November 20, 2010, JT’s Consulting Services paid $7,000 for

the December and January rent. As of December 31, 2010, one
month’s rent had already been used up.
QUESTION:
What dollar amount of rent was $7,000

used during the month of December? - 3,500
ANSWER:
$3,500
5-11
Worksheet
ACCOUNT NAME
Cash 83,500
Supplies 3,000 (a) 1,000
Prepaid Rent 7,000 (b) 3,500
Equipment 22,000
Fees Income 35,000
Rent Expense (b) 3,500
Depr. Exp.—Equip.
Totals 132,000 132,000
5-12
Depreciation
The cost is recorded as an asset and charged to expense over the

time the asset is used for the business.
$ ASSET
Expense
Expense
This expense is called Jan.

2008
depreciation.
Expense
5-13
There are several methods to calculate depreciation. JT’s
Consulting Services uses the straight-line method.
QUESTION:
What is straight-line depreciation?
ANSWER:
Straight-line depreciation (S/L) allocates

an asset’s cost in equal amounts to each
accounting period of its useful life.
S/L depreciation = Cost - salvage value
Estimated months of useful life
5-14
Calculating Depreciation
JT’s Consulting Services purchased equipment in November, 2010.

· Cost = $22,000
· Useful life = 5 yrs or 60 months (5 yrs x 12 months)
· Salvage value = $0
QUESTION:
What dollar amount of depreciation expense

should be recorded for the month?
Cost - salvage value $22,000 - $0

Estimated months of useful life 60 months
ANSWER:
$367
5-15
Adjustment for Depreciation
Instead of decreasing the asset account directly, the adjustment for
depreciation is recorded in a contra account named Accumulated
Depreciation—Equipment.
Accumulated Depreciation—
Equipment Equipment
+ +
Asset account has a Contra asset account has

normal debit balance a normal credit balance
5-16
Worksheet
ACCOUNT NAME
Cash 83,500
Supplies 3,000 (a) 1,000
Equipment 22,000
Accum. Depr.—Equip. (c) 367
When all adjustments are
Fees Income 35,000 entered, total and rule the
Salaries Expense 7,000 Adjustments columns.
Depr. Exp.—Equip. (c) 367
Totals 132,000 132,000 4,867 4,867
5-17
Book Value
Equipment Accumulated Depreciation—

Equipment
22,000
367
Original cost of equipment

Record of all depreciation
taken on equipment
Book value = Original cost – Accumulated depreciation

= 22,000 – 367
= 21,633
5-18
Chapter
5
Adjustments and the
Worksheet
Section 2: Financial Statements
Section Objectives
3. Complete the worksheet.
4. Prepare an income statement, statement of

owner's equity, and balance sheet from the
completed worksheet.
5. Journalize and post the adjusting entries.
McGraw-Hill © 2010 The McGraw-Hill Companies, Inc. All rights reserved.

The Accounting Cycle
Step 2 Step 3
Journalize the Post the
Step 1 data about data about Step 4
Analyze transactions transactions Prepare
transactions a
worksheet
Step 5
Prepare
financial
statements
Step 9 Step 6
Interpret Record
the financial Step 7 adjusting
information Step 8 Record entries
Prepare a closing
postclosing entries
trial balance
5-20
Objective 3 Complete the worksheet
You have already seen how to prepare the first two

sections of a worksheet:
 Trial Balance
 Adjustments
You will now learn how to complete a worksheet.
Preparing a worksheet is the fourth step of the

accounting cycle.
5-21
Step 1: Combine the figures from the Trial Balance section and the Adjustments
section. Record the results in the Adjusted Trial Balance columns.
ACCOUNT NAME
Cash 83,500
Supplies 3,000 (a) 1,500
Equipment 22,000
Fees Income 35,000
Totals 132,000 132,000 4,867 4,867
5-22
The accounts that do not have adjustments are extended from the Trial Balance
section to the Adjusted Trial Balance section.
ACCOUNT NAME
Cash 83,500 83,500

Accounts Receivable 5,000 5,000
Supplies 3,000 (a) 1,000
Equipment 22,000 22,000
Accounts Payable 7,000 7,000
Jason Taylor, Cap. 90,000 90,000
Jason Taylor, Draw. 4,000 4,000
Fees Income 35,000 35,000
Salaries Expense 7,000 7,000
Utilities Expense 500 500
Totals 120,000 120,000 4,867 4,867
5-23
The Supplies account has a $3,000 debit balance in the Trial Balance section
and a $1,000 credit in the Adjustments section.
($3,000 debit and $1,000 credit = $2,000)
ACCOUNT NAME
Cash 83,500 83,500

Supplies 3,000 (a) 1,000 2,000
Equipment 22,000 22,000
Accum. Depr.—Equip. (c) 367 367
Totals 132,000 132,000 4,867 4,867
5-24
Step 2: Total the Debit and Credit columns in the Adjusted Trial Balance
section. Confirm that debits equal credits.
ACCOUNT NAME
Cash 83,500 83,500

Supplies 3,000 (a) 1,000 2,000
Prepaid Rent 7,000 (b) 3,500 3,500
Equipment 22,000 22,000
Supplies Expense (a) 1,000 1,000
Rent Expense (b) 3,500 3,500
Depr. Exp.—Equip. (c) 367 367
Totals 132,000 132,000 4,867 4,867 132,367 132,367
5-25
For accounts that appear on the balance sheet, enter the amount in the
appropriate column of the Balance Sheet section. For accounts that appear on
the income statement, enter the amount in the appropriate column of the Income
Statement section.
ACCOUNT NAME
Cash 83,500 83,500

Supplies 3,000 (a) 1,000 2,000
Prepaid Rent 7,000 (b) 3,500 3,500
Equipment 22,000 22,000
Supplies Expense (a) 1,000 1,000
Rent Expense (b) 3,500 3,500
Depr. Exp.—Equip. (c) 367 367
Totals 132,000 132,000 4,867 4,867 132,367 132,367
5-26
After all the account balances are transferred to the financial statement
sections, total the Debit and Credit columns.
ACCOUNT NAME
Cash 83,500 83,500 83,500

Accounts Receivable 5,000 5,000 5,000
Supplies 3,000 (a) 1,000 2,000 2,000
Prepaid Rent 7,000 (b) 3,500 3,500 3,500
Equipment 22,000 22,000 22,000
Accum. Depr.—Equip. (c) 367 367 367
Accounts Payable 7,000 7,000 7,000
Jason Taylor, Cap. 90,000 90,000 90,000
Jason Taylor, Draw. 4,000 4,000 4,000
Fees Income 35,000 35,000 35,000
Salaries Expense 7,000 7,000 7,000
Utilities Expense 500 500 500
Supplies Expense (a) 1,000 1,000 1,000
Rent Expense (b) 3,500 3,500 3,500
Depr. Exp.—Equip. (c) 367 367 367
Totals 132,000 132,000 4,867 4,867 132,367 132,367 12,367 35,000 120,000 97,367
5-27
Subtract the smaller total from the larger total in the Income Statement section to
find the Net Income or Net Loss.
ACCOUNT NAME
Cash 83,500 83,500 83,500
Supplies 3,000 (a) 1,000 2,000 2,000
Prepaid Rent 7,000 (b) 3,500 3,500 3,500
Equipment 22,000 22,000 22,000
Jason Taylor, Cap. 90,000 90,000 90,000
Fees Income 35,000 35,000 35,000
Rent Expense (b) 3,500 3,500 3,500
Depr. Exp.—Equip. (c) 367 367 367
Totals 132,000 132,000 4,083 4,083 120,583 120,583 12,367 35,000 120,000 97,367
Net Income
5-28
If the credit total is more than the debit total, the firm has net income. . .
Enter the amount on the Net Income line. (35,000 – 12,367 = 22,633)
ACCOUNT NAME
Cash 83,500 83,500 83,500
Supplies 3,000 (a) 1,000 2,000 2,000
Prepaid Rent 7,000 (b) 3,500 3,500 3,500
Equipment 22,000 22,000 22,000
Jason Taylor, Cap. 90,000 90,000 90,000
Fees Income 35,000 35,000 35,000
Rent Expense (b) 3,500 3,500 3,500
Depr. Exp.—Equip. (c) 367 367 367
Totals 132,000 132,000 4,083 4,083 120,583 120,583 12,367 35,000 120,000 97,367
Net Income 22,633
5-29
Total the Income Statement and the Balance Sheet sections.
ACCOUNT NAME
Cash 83,500 83,500 83,500
Supplies 3,000 (a) 1,000 2,000 2,000
Prepaid Rent 7,000 (b) 3,500 3,500 3,500
Equipment 22,000 22,000 22,000
Jason Taylor, Cap. 90,000 90,000 90,000
Fees Income 35,000 35,000 35,000
Rent Expense (b) 3,500 3,500 3,500
Depr. Exp.—Equip. (c) 367 367 367
Totals 132,000 132,000 4,083 4,083 120,583 120,583 12,367 35,000 120,000 97,367
Net Income 22,633 22,633
35,000 35,000 120,000 120,000
5-30
Step 2 Step 3
transactions a
worksheet
Step 5
Prepare
financial
statements
Step 9 Step 6
Interpret Record
Prepare a closing
postclosing entries
trial balance
5-31
Objective 4 Prepare financial statements from
the worksheet

Income Statement
Revenue
Fees Income $35,000
Expenses
Salaries Expense $7,000
Utilities 500
Supplies Expense 1,000
Rent Expense 3,500
Depreciation Expense - Equipment 367
Total Expenses $12,367
Net Income for the Month $22,633
5-32
Statement of Owner’s Equity
Jason Taylor, Capital, December 1, 2010 $ 90,000
Net Income for December $22,633
Less Withdrawals for December 4,000
Increase in Capital 18,633
Jason Taylor, Capital, December 31, 2010 $108,633
5-33
Balance Sheet
December 31, 2010
Assets Liabilities
Cash $83,500.00 Accounts Payable $ 7,000.00
Accounts Receivable 5,000.00
Supplies 2,000.00
Prepaid Rent 3,500.00 Owner’s Equity
Equipment 22,000.00 Jason Taylor, Capital 108,633.00
Total Assets $ 115,633.00 Total Liabilities and Owner’s Equity $ 115,633.00
The balance sheet in Chapter 4 was prepared using the

account form.
5-34
Balance Sheet
Assets
Cash $83,500
Supplies 2,000
Prepaid Rent 3,500
Equipment 22,000
Less Accumulated Depreciation 367 21,633
Total Assets $115,633
Liabilities and Owner’s Equity
Liabilities
Accounts Payable $ 7,000
Owner’s Equity
Jason Taylor, Capital 108,633
Total Liabilities and Owner’s Equity $115,633
5-35
Objective 5 Journalize and post the
adjusting entries
The worksheet is NOT

A financial statement
A permanent part of the accounting record
It is only a tool.
5-36
Step 2 Step 3
transactions a
worksheet
Step 5
Prepare
financial
statements
Step 9 Step 6
Interpret Record
Prepare a closing
postclosing entries
trial balance
5-37
QUESTION:
What adjustments must JT’s
Consulting Services record for
the month?
ANSWER:
(a) Adjustment for supplies used

(b) Adjustment for expired rent
(c) Adjustment for depreciation
5-38
GENERAL JOURNAL PAGE 3
POST.
DATE DESCRIPTION REF . DEBIT CREDIT
2010 Adjusting Entries

Dec. 31 Supplies Expense 517 1000.00
Supplies 121 1000.00
31 Rent Expense 520 3,500.00

Prepaid Rent 137 3,500.00
31 Depr. Expense–Equipment 523 367.00

Accum. Depr.–Equipment 142 367.00
ACCOUNT Supplies Expense ACCOUNT NO. 517

POST. BALANCE
DATE DESCRIPTION REF. DEBIT CREDIT DEBIT CREDIT
2010
Dec. 31 Adjusting J3 1000.00 1000.00
5-39
Thank You
for using
College Accounting, 12th Edition
Price • Haddock • Farina
5-40

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5-1

1. Complete a trial balance on

2. Prepare adjustments for

McGraw-Hill © 2009 The McGraw-Hill Companies, Inc. All rights reserved.

JT’s Consulting Services

1. Enter the general ledger account names.

2. Transfer the general ledger account balances to the Debit

JT’s Consulting Services

JT’s Consulting Services

J. Taylor, Cap. Dec. 31 J2 4,000 95,000

JT’s Consulting Services began the month with $3,000 in supplies.

What dollar amount of supplies was $3,000

On November 20, 2010, JT’s Consulting Services paid $7,000 for

What dollar amount of rent was $7,000

The cost is recorded as an asset and charged to expense over the

This expense is called Jan.

What is straight-line depreciation?

Straight-line depreciation (S/L) allocates

JT’s Consulting Services purchased equipment in November, 2010.

What dollar amount of depreciation expense

Cost - salvage value $22,000 - $0

Asset account has a Contra asset account has

Equipment Accumulated Depreciation—

Original cost of equipment

Book value = Original cost – Accumulated depreciation

4. Prepare an income statement, statement of

5. Journalize and post the adjusting entries.

McGraw-Hill © 2010 The McGraw-Hill Companies, Inc. All rights reserved.

You have already seen how to prepare the first two

You will now learn how to complete a worksheet.

Preparing a worksheet is the fourth step of the

Cash 83,500 83,500

Cash 83,500 83,500

Cash 83,500 83,500

Cash 83,500 83,500

Cash 83,500 83,500 83,500

JT’s Consulting Services

Jason Taylor, Capital, December 1, 2010 $ 90,000

Net Income for December $22,633

Less Withdrawals for December 4,000

Increase in Capital 18,633

Jason Taylor, Capital, December 31, 2010 $108,633

The balance sheet in Chapter 4 was prepared using the

The worksheet is NOT

(a) Adjustment for supplies used

2010 Adjusting Entries

31 Rent Expense 520 3,500.00

31 Depr. Expense–Equipment 523 367.00

ACCOUNT Supplies Expense ACCOUNT NO. 517

College Accounting, 12th Edition

Price • Haddock • Farina

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