Introduction to Adjustments-2-7-2025

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Accounting Worksheet Introductions 4.03

Definition and Purpose

This is a Ten-Column Worksheet with 5 Sections used to prove the general ledger.

1. Trial Balance

2. Adjustments

3. Adjusted Trial Balance

4. Income Statement

5. Balance Sheet
   

Trial Balance Worksheet

How to complete it...

Trial Balance Section

1. Enter the Account Name and Number (from ALL account ledgers)

2. Enter the balance in the debit or credit column

3. (be sure you include the account Income Summary between the Drawing and the first Expense Account, it will have no balance!)

4. Rule the debit and credit columns single, then double if accurate

Multiple Choice

What is the purpose of a trial balance?

• To prove the general ledger

• To calculate net income

• To assess inventory levels

• To determine tax liability

Multiple Choice

What is the first step in preparing a ten-column worksheet?

• Enter account name and number

• Calculate net income

• Adjust the balance sheet

• Record inventory levels

ADJUSTMENTS (WHY!)
Match Revenue and Expenses

Recording Supplies Adjustements

1. Write the debit amounts in the Adjustments Debit Column.

2. Write the credit Adjustments in the Credit Column.

3. Lable the two parts of the Supplies-Store Adjustment with a small a and the two parts of a different Supplies-Office account with b Prepaid Insurance 2 entries will then be c

Discuss Adjustments
& Prooving

Multiple Choice

On a trial balance

• all general ledger account titles are listed
• only general ledger accounts that have balances are listed
• only accounts with debit balances are listed
• only accounts with credit balances are listed

Multiple Choice

What is the purpose of adjusting entries for prepaid expenses?

• To decrease assets

• To match revenues and expenses

• To increase liabilities

• To adjust the trial balance

Multiple Choice

When adjusting prepaid accounts, which accounts are credited?

• Revenues

• Assets

• Expenses

• Liabilities

Multiple Choice

When adjusting prepaid accounts, which accounts are debited?

• Revenues

• Assets

• Expenses

• Liabilities

Calculating Adjustments Needed
to Supplies

Beginning Balance - Actual Balance = Adjustment

If the beginning Supplies balance is $2,200, and the ending Supplies balance is $700, the correct adjustment on the worksheet is to:
debit Supplies Expenses and credit Supplies, $1,500.

Calculating Adjustments Needed
to Prepaid Insurance

(Beginning Balance/Months in a Year)
multiply by the number of months in the period if greater than 1

If the beginning Prepaid Insurance balance is $4,800 and the ending the correct adjustment on the worksheet at the end of one every month:
debit Preapid Insurance Expenses and credit Prepaid Insurance, $400.

Multiple Choice

The company paid $2,400 for an annual insurance premium at the beginning of the year. What is the adjusting entry at the end of the first month?

• Debit Insurance Expense $200, Credit Prepaid Insurance $200

• Debit Prepaid Insurance $200, Credit Insurance Expense $200

• Debit Prepaid Insurance $2,400, Credit Insurance Expense $2,400

• Debit Insurance Expense $2,400, Credit Prepaid Insurance $2,400

Multiple Choice

The company paid $2,400 for an annual insurance premium at the beginning of the year. What is the adjusting entry at the end of the first month?

• Debit Insurance Expense $200, Credit Prepaid Insurance $200

• Debit Prepaid Insurance $200, Credit Insurance Expense $200

• Debit Prepaid Insurance $2,400, Credit Insurance Expense $2,400

• Debit Insurance Expense $2,400, Credit Prepaid Insurance $2,400

Multiple Choice

What is true about Prepaid Insurance adjusting entries?

• You will always divide by 12 to calculate

• The ending balance is the same

• The adjustment is the same value each month

• The adjustment will be different values each month

Multiple Choice

The company paid $3,000 for a three-month advertising contract at the beginning of the quarter. What is the adjusting entry at the end of the first month?

• Debit Advertising Expense $1,000, Credit Prepaid Advertising $1,000

• Debit Prepaid Advertising $1,000, Credit Advertising Expense $1,000

• Debit Prepaid Advertising $3,000, Credit Advertising Expense $3,000

• Debit Advertising Expense $3,000, Credit Prepaid Advertising $3,000

FABM1 : ADJUSTING ENTRIES

^{Lesson Reinforcement}

Instruction: Read the instructions indicated in the slides carefully.

ADJUSTING ENTRIES

Since businesses follow the Accrual Concept of accounting, entities must record transactions regardless of when the payment will be made. This concept results to adjusting the accounts at the end of the accounting period to keep it updated.

ACCRUED vs DEFERRED

Accrued = Service Rendered but not yet paid

Deferred = Paid but not yet rendered.

ACCRUED EXPENSES

Are expenses already incurred but not yet paid by the entity. Often supported by Billing Statement. This is recorded as an expense.

The most common example is Utilities Expense because this is often postpaid (paid after use).

Multiple Select

On March 16, Company A received billing for their electricity consumption for the month of February which is expected to be settled before March 20. What are the account titles involved in the initial journal entry? Select all possible account titles to be used.

• Utilities Expense

• Accounts Payable

• Utilities Payable

• Cash

• Prepaid Utilities

Multiple Select

On March 20, Company A paid the billed expense. What are the account titles involved in the adjusting entry? Select all possible account titles to be used.

• Utilities Expense

• Accounts Payable

• Utilities Payable

• Cash

• Prepaid Utilities

DEFERRED/PREPAID EXPENSES

These are expenses paid in advance and are expected to be consumed in their useful time. These are often treated as current assets because of their nature.

Examples are Prepaid Rent, Prepaid Insurance, and etc.

Multiple Choice

On March 17, Company B paid Company A P20,000 for 2 months advance rental. From the choices below, select which account must be DEBITED to record the initial journal entry

• Prepaid Rent

• Rent Expense

• Cash

• Accounts Payable

Multiple Choice

On April 17, Company B already consumed half of the rent. Select from the choices below which account must be DEBITED to record the initial adjusting entry

• Prepaid Rent

• Rent Expense

• Cash

• Accounts Payable

ACCRUED REVENUES

The entity already rendered the service but the client has not paid yet. This must be recorded immediately as revenue.

Fill in the Blanks

If Company C, billed company A for Accounting services. What is the account to be DEBITED in the initial transaction? Type your answer in capital letters

Fill in the Blanks

If Company C, billed company A for Accounting services. What is the account to be CREDITED in the initial transaction? Type your answer in capital letters

DEFERRED/UNEARNED REVENUE

Is a revenue paid but not yet rendered by the entity. Since the customer already paid us, we are now being obliged to render the service that is why it must be treated as a liability that needs to be settled.

Multiple Choice

TRUE/FALSE: In recording an unearned revenue, we debit Cash and credit Unearned Revenue.

• TRUE

• FALSE

Multiple Choice

TRUE/FALSE: In adjusting an unearned revenue, we debit revenue and credit unearned revenue.

• TRUE

• FALSE

Open Ended

WHY DO WE RECORD USE "UNEARNED REVENUE" A LIABILITY ACCOUNT, IN RECORDING THE TRANSACTION INSTEAD OF RECORDING THE REVENUE RIGHT AWAY? EXPLAIN YOUR ANSWER IN 1-2 SENTENCES.

ACCUMULATED DEPRECIATION

A contra-asset account used to diminish/reduce the amount of a Non-Current Asset. Since Assets are subject to wear and tear for being used and with that, their value decreases. Accumulated Depreciation represents the used/utilized portion or lifespan of the asset.

This is often partnered with an expense account

ACCUMULATED DEPRECIATION

DEFINITION OF TERMS:

SALVAGE VALUE: Amount of the asset at end of its useful life.

USEFUL LIFE: Lifespan of an asset.

FAIR MARKET VALUE: Current amount of an asset (Book Value - Depreciation)

BOOK VALUE: Amount of the asset when it was acquired.

ACCUMULATED DEPRECIATION

FORMULA:

DEPRECIATION = (BOOK VALUE - SALVAGE VALUE) / USEFUL LIFE

MONTHLY DEPRECIATION = DEPRECIATION / 12 MONTHS

Multiple Choice

In recording the depreciation for the month. What are the accounts to be used?

• Debit: Depreciation Expense

  Credit: Accumulated Depreciation

• Debit: Accumulated Depreciation

  Credit: Depreciation Expense

• Debit: Depreciation Expense

  Credit: Cash

• None of the above

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Is also a contra-asset account that is used to record uncollectable receivables. This is often supported by a percentage indicated by businesses as part of contingency measures.

Multiple Select

What are the accounts needed to set up the Allowance for Doubtful Accounts. Select all possible answers

• Allowance for Doubtful Accounts

• Accounts Receivable

• Bad Debts Expense