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Disagree; worksheets are optional (and often used), but are not required. The purpose of adjusting is to update accounts to the latest balance before financial statements are prepared, thus presenting an up-to-date picture in the financial statements. The internal transactions make it necessary to make adjustments. Example: Rent expiring over a period of time. An example would be a depreciation adjustment: Depreciation Expense goes on the income statement and Accumulated Depreciation goes on the balance sheet. We need the Accumulated Depreciation account because it records a history of depreciation that has been accumulated and aids in preserving the original cost of an asset in the ledger. False; Depreciation Expense goes on the income statement. Disagree; cost of equipment remains the same. Accrued salaries are salaries that are unpaid and unrecorded in an accounting period (and thus will need to be recorded by an adjustment) and will not come due for payment until the next accounting period. The balances of accounts, which appear on formal statements, were accumulated by the recording of debits or credits; it is not necessary to repeat this on the formal statements. The worksheet provides all the data to prepare the financial statements. The accountant rearranges the data from the worksheet to prepare the financial statements. Remember: The worksheet has the old figure for capital, which is updated when the statement of owners equity and balance sheet are prepared.
84
Used up
2 Category 3 4 Rules 5 T-Account Computer Supplies Exp. 600 Dr. Computer Supplies 700 600
1 Accounts Affected
Exp.
Computer Supplies
Cr.
Rent Exp.
Exp.
4 Rules
Exp.
CA
Cr.
85
Salaries Expense
Exp.
Dr.
6. On worksheet Equipment was in debit column and Acc. Depr. is on credit column. Formal reports have no debits and credits. Inside columns are only for subtotalling on the formal reports. A. Total assets of $16 is not on the worksheet because the Acc. Depr. has been rearranged. B. The $3 of total liabilities is not on the worksheet since each one is shown separately. C. The figure for capital on the worksheet was the beginning or old. On the Financial statements the new or ending figure for capital B is used (from the statement of owners equity). D. Thus the total of $16 will not be on the worksheet since numbers from the worksheet have been rearranged.
86
Account Fax Machine Prepaid Insurance Digital camera Acc. Depreciation A. Jax, Capital A. Jax, Withdrawals Salaries Payable Depreciation Exp.
4-2.
Accounts Affected A) Depreciation Expense Accumulated Depreciation B) Rent Expense Prepaid Rent Category Expense Contra-Asset Expense Asset
4-3. A) Supplies used up B) Depreciation $100 $400 Debit Supplies Expense and Credit Supplies $400 Debit Depreciation Expense and Credit Accumulated Depreciation for $100.
87
4-4.
EXERCISES
J. TRENT WORKSHEET FOR MONTH ENDED DECEMBER 31, 200X Trial Balance Debit 9 2 7 6 7 2 4 17 6 24 4 6 47 (A) 2 (B) 1 (C) 2 (D) 5 10 10 54 47 2 1 2 5 54 20 4 24 24 34 24 34 2 1 2 5 30 4 34 (D) 5 11 4 6 24 4 11 24 17 6 4 (A) 2 4 7 (C) 2 4 (B) 1 6 2 9 Credit Debit Credit Debit Credit Debit Credit Adjustments Adjusted Trial Balance Income Statement Balance Sheet Debit 9 2 6 4 7 4 4 17 Credit
Account Titles
Cash
Accounts Receivable
Prepaid Insurance
Store Supplies
Store Equipment
88
Accounts Payable
J. Trent, Capital
J. Trent, Withdrawals
Rent Expense
Wage Expense
Insurance Expense
Wages Payable
Net Income
Revenue: Revenue from Clients Operating Expenses: Rent Expense Wage Expense Depreciation Expense, Store Equipment Insurance Expense Store Supplies Expense Total Operating Expenses Net Income
$ 2 4 00
4 1 1 2 1 2
00 00 00 00 00 2 0 00 $ 4 00
(B)
J. TRENT STATEMENT OF OWNERS EQUITY FOR MONTH ENDED DECEMBER 31, 200X
J. Trent, Capital, December 1, 200x Net Income for December Less: Withdrawals for December Decrease in Capital J. Trent, Capital, December 31, 200x
$ 1 7 00 $ 4 00 (6 00) (2 00) $ 1 5 00
89
(C)
EXERCISES (CONTINUED)
J. TRENT BALANCE SHEET DECEMBER 31, 200X Assets Liabilities and Owners Equity
$ 9 2 6 4 $ 7 00 (4 00) 3 00 $ 2 4 00
00 00 00 00
$ 4 00 5 00 $ 9 00 1 5 00 $ 2 4 00
90
Cash Accounts Receivable Prepaid Insurance Store Supplies Store Equipment Less Accum. Dep.
Total Assets
Liabilities Accounts Payable Wages Payable Total Liabilities Owners Equity J. Trent, Capital Total Liabilities and Owners Equity
PROBLEM 4A-1
MATTYS GROOMING SERVICE WORKSHEET FOR MONTH ENDED DECEMBER 31, 200X
Adjustments
Account Titles
0 0 4 2
Dr. 0 0 0 0 0 0 0 0 00 00 00 00
Dr. 7 0 0 0 6 0 0 0 8 0 0 7 2 0 0
00 00 00 00 6 5 0 0 00 12 3 5 0 00 3 0 0 0 00 11 3 0 0 00 9 0 0 00 1 5 0 00
SOLUTIONS TO A PROBLEMS
91
Cash in Bank Accounts Receivable Grooming Supplies Grooming Equipment Acc. Dep., Gym Equipment M. Magee, Capital M. Magee, Withdrawals Grooming Fees Rent Expense Advertising Expense
4 6 0 0 00 5 0 0 00 1 0 0 00 30 1 5 0 00 30 1 5 0 00
PROBLEM 4-A2
FREDS PLUMBING SERVICE WORKSHEET FOR MONTH ENDED DECEMBER 31, 200X Trial Balance Debit 3,606 700 800 742 1,400 1,060 442 3,250 4,356 400 200 1,260 9,108 (A) 500 (B) 642 (C) 200 (D) 350 1,692 1,692 9,658 9,108 500 642 200 350 9,658 3,552 804 4,356 4,356 6,106 4,356 6,106 500 642 200 350 5,302 804 6,106 (D) 350 1,610 200 400 4,356 400 200 1,610 3,250 4,356 442 (C) 200 1,260 1,400 (B) 642 100 (A) 500 300 700 3,606 Credit Debit Credit Debit Credit Debit Credit Adjustments Adjusted Trial Balance Income Statement Balance Sheet Debit 3,606 700 300 100 1,400 1,260 442 3,250 Credit
Account Titles
Cash in bank
Accounts Receivable
Prepaid Rent
Plumbing Supplies
Plumbing Equipment
Accounts Payable
92
Plumbing Revenue
Heat Expense
Advertising Expense
Wage Expense
Rent Expense
Wages Payable
Net Income
PROBLEM 4-A3
KEVINS MOVING CO WORKSHEET FOR MONTH ENDED OCTOBER 31, 200X Trial Balance Debit 5,000 2,500 1,200 11,000 9,000 2,768 5,442 1,400 9,000 3,712 1,080 318 26,210 (A) 700 (B) 300 (C) 500 (D) 250 1,750 1,750 26,960 26,210 700 300 500 250 26,960 6,860 2,140 9,000 9,000 20,100 9,000 20,100 700 300 500 250 17,960 2,140 20,100 (D) 250 3,962 1,080 318 1,400 9,000 3,962 1,080 318 9,000 5,442 1,400 2,768 (C) 500 9,500 11,000 (B) 300 900 (A) 700 1,800 5,000 Credit Debit Credit Debit Credit Debit Adjustments Adjusted Trial Balance Income Statement Credit Balance Sheet Debit 5,000 1,800 900 11,000 9,500 2,768 5,442 Credit
Account Titles
Cash
Prepaid Insurance
Moving Supplies
Moving Truck
Accounts Payable
K. Hoff, Capital
93
K. Hoff, Withdrawals
Wage Expense
Rent Expense
Advertising Expense
Insurance Expense
Wages Payable
Net Income
Revenue: Revenue from Moving Operating Expenses: Wage Expense Rent Expense Advertising Expense Insurance Expense Moving Supplies Expense Depreciation Expense; Moving Truck Total Operating Expenses Net Income
$9 0 0 0 00
$3 1
9 0 3 7 3 5
6 8 1 0 0 0
2 0 8 0 0 0
00 00 00 00 00 00 6 8 6 0 00 $2 1 4 0 00
KEVINS MOVING CO. STATEMENT OF OWNERS EQUITY FOR MONTH ENDED OCTOBER 31, 200X
(2) K. Hoff, Capital, October 1, 200x Net Income for October Less: Withdrawals for October Increase in Capital K. Hoff, Capital, October 31, 200x $5 4 4 2 00 $2 (1 1 4 0 00 4 0 0 00) 7 4 0 00 $6 1 8 2 00
94
(2)
KEVINS MOVING CO. BALANCE SHEET OCTOBER 31, 200X ASSETS LIABILITIES AND OWNERS EQUITY
95
$5 0 0 0 00 1 8 0 0 00 9 0 0 00 $11 0 0 0 00 (9 5 0 0 00) 1 5 0 0 00
Cash Prepaid Insurance Moving Supplies Moving Truck Less Acc. Dep.
Liabilities Accounts Payable Wages Payable Total Liabilities Owners Equity K. Hoff, Capital
$2 7 6 8 00 2 5 0 00 $3 0 1 8 00
1 8 2 00
Total Assets
$9 2 0 0 00
$9 2 0 0 00
PROBLEM 4A-4
DICKS REPAIR SERVICE WORKSHEET FOR MONTH ENDED OCTOBER 31, 200X Trial Balance Debit 3,200 4,000 4,600 3,000 700 5,570 3,800 7,000 1,800 360 110 17,070 (A) 700 (B) 1,600 (C) 200 (D) 400 2,900 2,900 17,670 1,600 200 400 17,670 5,170 1,830 7,000 7,000 12,500 7,000 12,500 700 17,070 700 1,600 200 400 10,670 1,830 12,500 110 360 (D) 400 2,200 7,000 2,200 360 110 3,800 7,000 5,570 (C) 200 900 3,000 (B) 1,600 3,000 (A) 700 3,300 3,200 Credit Debit Credit Debit Credit Debit Credit Adjustments Adjusted Trial Balance Income Statement Balance Sheet Debit 3,200 3,300 3,000 3,000 900 5,570 3,800 Credit
Account Titles
Cash
Prepaid Insurance
Repair Supplies
Repair Equipment
Accounts Payable
96
Wages Expense
Rent Expense
Advertising Expense
Insurance Expense
Wages Payable
Net Income
Revenue: Revenue from Repairs Operating Expenses: Wages Expense Rent Expense Advertising Expense Insurance Expense Repair Supplies Expense Depreciation Expense; Repair Equipment Total Operating Expenses Net Income
$7 0 0 0 00
$2
2 3 1 7 6 2
0 6 1 0 0 0
0 0 0 0 0 0
00 00 00 00 00 00 5 1 7 0 00 $1 8 3 0 00
(2)
DICKS REPAIR SERVICE STATEMENT OF OWNERS EQUITY FOR MONTH ENDED NOVEMBER 30, 200X
Dick Horn, Capital, November 30, 200x Net Income for November Dick Horn, Capital, November 30, 200x
$3 8 0 0 00 1 8 3 0 00 $5 6 3 0 00
97
(2)
DICKS REPAIR CO. BALANCE SHEET NOVEMBER 30, 200X ASSETS LIABILITIES AND OWNERS EQUITY
Cash Prepaid Insurance Repair Supplies Repair Equipment Less Acc. Dep.
$5 5 7 0 00 4 0 0 00 $5 9 7 0 00
98
5 6 3 0 00
Total Assets
$11 6 0 0 00
$11 6 0 0 00
PROBLEM 4B-1
MATTYS GROOMING CENTER WORKSHEET FOR MONTH ENDED DECEMBER 31, 200X
Adjustments
SOLUTIONS TO B PROBLEMS
99
Cash Accounts Receivable Grooming Supplies Grooming Equipment Acc. Dep., Gym Equipment M. Magee, Capital M. Magee, Withdrawals Gym Fees Rent Expense Advertising Expense
1 2 0 0 00 5 0 0 00 7 0 0 00 22 6 0 0 00 22 6 0 0 00
PROBLEM 4B-2
FREDS PLUMBING SERVICE WORKSHEET FOR MONTH ENDED OCTOBER 31, 200X Trial Balance Debit 396 284 400 310 1,000 200 346 456 4,680 632 1,200 1,460 5,682 (A) 250 (B) 150 (C) 200 (D) 115 715 715 5,997 5,682 250 150 200 115 5,997 4,007 673 4,680 4,680 1,990 4,680 1,990 250 150 200 115 1,317 673 1,990 (D) 115 1,575 1,200 632 456 4,680 632 1,200 1,575 4,680 346 (C) 200 400 1,000 (A) 250 60 (B) 150 250 284 396 Credit Debit Credit Debit Credit Debit Credit Adjustments Adjusted Trial Balance Income Statement Balance Sheet Debit 396 284 250 60 1,000 400 346 456 Credit
Account Titles
Cash in bank
Accounts Receivable
Prepaid Rent
Plumbing Supplies
Plumbing Equipment
100
Accounts Payable
Plumbing Revenue
Heat Expense
Advertising Expense
Wage Expense
Rent Expense
Wages Payable
Net Income
PROBLEM 4B-3
KEVINS MOVING CO. WORKSHEET FOR MONTH ENDED OCTOBER 31, 200X Trial Balance Debit 3,920 3,288 1,400 10,658 3,660 1,312 17,482 4,240 8,162 5,712 1,080 318 30,616 (A) 600 (B) 1,090 (C) 580 (D) 410 2,680 2,680 31,606 30,616 600 1,090 580 410 31,606 9,790 9,790 8,162 1,628 9,790 21,816 1,628 23,444 23,444 600 1,090 580 410 23,444 318 1,080 (D) 410 6,122 4,240 8,162 6,122 1,080 318 8,162 17,482 4,240 1,312 (C) 580 4,240 10,658 (B) 1,090 310 (A) 600 2,688 3,920 Credit Debit Credit Debit Credit Debit Credit Adjustments Adjusted Trial Balance Income Statement Balance Sheet Debit 3,920 2,688 310 10,658 4,240 1,312 17,482 Credit
Account Titles
Cash
Prepaid Insurance
Moving Supplies
Moving Truck
Accounts Payable
K. Hoff, Capital
K. Hoff, Withdrawals
101
Wage Expense
Rent Expense
Advertising Expense
Insurance Expense
Wages Payable
Net Loss
Revenue: Revenue from Moving Operating Expenses: Wage Expense Rent Expense Advertising Expense Insurance Expense Moving Supplies Expense Depreciation Expense; Moving Truck Total Operating Expenses Net Loss
$8 1 6 2 00
$6 1
1 0 3 6 0 5
2 8 1 0 9 8
2 0 8 0 0 0
00 00 00 00 00 00 9 7 9 0 00 ($1 6 2 8 00)
KEVINS MOVING CO. STATEMENT OF OWNERS EQUITY FOR MONTH ENDED OCTOBER 31, 200X
(2) K. Hoff, Capital, October 1, 200x Net Loss for October Less: Withdrawals for October Decrease in Capital K. Hoff, Capital, October 31, 200x $17 4 8 2 00 $(1 6 2 8 00) (4 2 4 0 00) (5 8 6 8 00) $11 6 1 4 00
102
(2)
KEVINS MOVING CO. BALANCE SHEET OCTOBER 31, 200X ASSETS LIABILITIES AND OWNERS EQUITY
Cash Prepaid Insurance Moving Supplies Moving Truck Less Acc. Dep.
$1 3 1 2 00 4 1 0 00 $1 7 2 2 00
103
11 6 1 4 00
Total Assets
$13 3 3 6 00
$13 3 3 6 00
PROBLEM 4B-4
DICKS REPAIR SERVICE WORKSHEET FOR MONTH ENDED OCTOBER 31, 200X Trial Balance Debit 3,204 4,000 770 3,106 650 1,904 6,258 5,634 1,600 1,560 206 14,446 (A) 300 (B) 600 (C) 250 (D) 106 1,256 1,256 14,802 600 250 106 14,802 4,622 1,012 5,634 5,634 10,180 5,634 10,180 300 14,446 300 600 250 106 9,168 1,012 10,180 206 1,560 (D) 106 1,706 5,634 1,706 1,560 206 6,258 5,634 1,904 (C) 250 900 3,106 (B) 600 170 (A) 300 3,700 3,204 Credit Debit Credit Debit Credit Debit Credit Adjustments Adjusted Trial Balance Income Statement Balance Sheet Debit 3,204 3,700 170 3,106 900 1,904 6,258 Credit
Account Titles
Cash
Prepaid Insurance
Repair Supplies
Repair Equipment
Accounts Payable
104
Wages Expense
Rent Expense
Advertising Expense
Insurance Expense
Wages Payable
Net Income
Revenue: Revenue from Repairs Operating Expenses: Wages Expense Rent Expense Advertising Expense Insurance Expense Repair Supplies Expense Depreciation Expense, Repair Equipment Total Operating Expenses Net Income
$5 6 3 4 00
$1 1
7 5 2 3 6 2
0 6 0 0 0 5
6 0 6 0 0 0
00 00 00 00 00 00 4 6 2 2 00 $1 0 1 2 00
(2)
DICKS REPAIR SERVICE STATEMENT OF OWNERS EQUITY FOR MONTH ENDED NOVEMBER 30, 200X
Dick Horn, Capital, November 1, 200x Net Income for November Dick Horn, Capital, November 30, 200x
$6 2 5 8 00 1 0 1 2 00 $7 2 7 0 00
105
DICKS REPAIR SERVICE BALANCE SHEET NOVEMBER 30, 200X ASSETS LIABILITIES AND OWNERS EQUITY
Cash Prepaid Insurance Repair Supplies Repair Equipment Less Acc. Dep.
$1 9 0 4 00 1 0 6 00 $2 0 1 0 00
106
2 7 0 00
Total Assets
$9 2 8 0 00
$9 2 8 0 00
4 month $20 = $80 $400 400 400 200 200 500 500
SOLUTIONS TO REAL WORLD APPLICATION #3 All expenses that are incurred in the old year (whether paid or not) should be shown. Discussions should center around expenses that could be postponed until next year to take advantage of accounting laws.
107
ELDORADO COMPUTER CENTER WORK SHEET FOR THE THREE MONTHS ENDED SEPTEMBER 30, 200X
Trial Balance Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr.
Adjustments
Income Statement
Account Titles
Dr.
1 645 2 600 1 200 450 2 400 600 8 0 0 00 3 6 0 00 2 1 0 00 4 5 0 0 00 1 0 0 00 6 6 8 5 00 0 0 0 0 0 0 5 8 0 0 00 3 6 0 00 9 9 00 9 9 00 2 0 00 2 0 00 3 6 0 00 9 9 00 9 9 00 2 0 00 00 00 00 00 00 00 00 11 3 9 5 00 1 40 1 20 18 22 15 5 0 0 0 0 0 0 00 00 00 00 00 00 6 6 8 5 00 1 400 1 200 180 220 150 50 00 00 00 00 00 00 6 6 8 5 00 2 1 0 00 4 5 0 0 00
00 00 00 00 00 00
1 64 2 60 40 9 2 40 60
5 0 0 0 0 0
00 00 00 00 00 00
1 6 4 2 6 0 4 0 9 2 4 0 6 0
5 0 0 0 0 0
00 00 00 00 00 00 2 1 0 00 4 5 0 0 00 1 0 0 00
1 0 0 00
Cash Accounts Receivable Prepaid Rent Supplies Computer Shop Equip. Office Equipment Accounts Payable Freedman, Capital Freedman, Withdrawals Service Revenue Advertising Expense Rent Expense Utilities Expense Phone Expense Insurance Expense Postage Expense
0 0 8 2 5 5 11 3 9
1 4 4 1 2 1
3 6 0 00 9 9 00 9 9 00
Supplies Expense Depr. Exp. C.S. Equip. Accum. Depr. C.S. Equip. Depr. Exp. Office Equip. Accum. Depr. Office Equip.
Net Income
2 0 00 2 0 00 1 2 7 9 00 1 2 7 9 00 11 5 1 4 00 11 5 1 4 00 3 6 7 9 00 6 6 8 5 00 7 8 3 5 00 4 8 3 0 0 6 00 3 0 6 6 8 5 00 6 6 8 5 00 7 8 3 5 00 7 8
2 2 0 3
0 9 6 5
00 00 00 00
CONTINUING PROBLEM
ELDORADO COMPUTER CENTER INCOME STATEMENT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 200X
Revenue: Service Revenue Operating Expenses: Advertising Exp Rent Exp Utilities Exp Phone Exp Insurance Exp Postage Exp Supplies Exp Depr. Exp. Comp. Shop Equip. Depr. Exp. Office Equip. Total Expenses Net Income
$6 6 8 5 00
$1 1
4 2 1 2 1
0 0 8 2 5 5 3 6 9 2
0 0 0 0 0 0 0 9 0
00 00 00 00 00 00 00 00 00 3 6 7 9 00 $3 0 0 6 00
ELDORADO COMPUTER CENTER STATEMENT OF OWNERS EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 200X
Freedman, Capital, July 1, 200x Net Income Less: Freedman, Withdrawals Net Increase in Capital Freedman, Capital, Sept. 30, 200x
$4 5 0 0 00 $3 0 0 6 00 (1 0 0 00) 2 9 0 6 00
$7 4 0 6 00
109
ELDORADO COMPUTER CENTER BALANCE SHEET SEPTEMBER 30, 200X LIABILITIES AND OWNERS EQUITY
ASSETS
2 1 0 00
110
$1 6 4 2 6 0 4 0 9 2 2 3 0 1 00 5 8 0 00 $7 6 1 6 00 Total Liabilities and Owners Equity 4 ( 6 ( 0 9 0 2 0 9 0 0 00 00) 00 00) Owners Equity Freedman Capital
5 0 0 0
00 00 00 00
Cash Accounts Receivable Prepaid Rent Supplies Comp. Shop Equip. Less: Accum. Depr. Office Equip. Less Accum. Depr. Total Assets
7 4 0 6 00
$7 6 1 6 00