Kế toán, kiểm toán - Chapter twenty one: Worksheet adjustments

CHAPTER TWENTY ONEWORKSHEET ADJUSTMENTS1. Explain the need for worksheet adjustments.2. Describe how adjustments are calculated and recorded on the worksheet. 3. Explain the procedure for writing off an uncollectible account receivable.4. Complete the Adjusted Trial Balance section of the worksheet. WORKSHEET ADJUSTMENTSObjectives:3The Need for AdjustmentsIt is important that the financial statements present a complete picture of the results of operations and the condition of the business. The revenues and expenses for the period must be matched in order to accurately determine the net income or net loss. This is the matching principle of accounting.4The Adjustment for Merchandise InventoryWhen the trial balance is prepared, the General Ledger shows the amount of merchandise inventory that was on hand at the start of the accounting period. Changes occurred during the period because goods were purchased and sold -- those changes need to be recorded.5The Adjustment for Supplies UsedThe cost of the inventory of supplies on hand at the end of the month are subtracted from the cost of supplies available during the month. The resulting figure is the cost of supplies used during the month.6The Adjustment for Expired InsuranceAn adjustment must be made to charge the cost of the expired insurance to the operations of the period.7The Adjustment for DepreciationThe cost of each long-term asset must be charged to operations. The amount that is charged to operations is called depreciation.8The Adjustments for Uncollectible AccountsEstimated uncollectible amounts owed by credit customers are referred to as uncollectible accounts, or bad debts. As an expense for the business they must be recorded.9Writing Off a Customer’s AccountIf efforts to collect money owed the business are not successful, the customer’s account is written off by recording the following entry in the general journal.10Entry to Record the Writing Off of a Customer’s Account11Completing the Adjustments Section of the WorksheetAfter the adjustments are entered on the worksheet of Maddalon Office Supply, the Adjustments section can be completed.12The Adjusted Trial Balance Section of the WorksheetThe worksheet provides a special section for preparing an adjusted trial balance. The amounts in the Adjustments section must be combined with the amounts in the Trial Balance section to determine the new account balances.13Accounting TerminologyAdjustmentsBeginning inventoryBook valueContra accountDepreciationDisposal valueUncollectible accountsEnding inventoryInventory SheetLong-term assetsMatching principlePhysical inventoryPrepaid InsuranceProperty, plant, and equipmentStraight-line methodUseful lifeWorksheet14Chapter SummaryAdjustments must be entered on the worksheet to provide the information on the account changes for the financial statements.15Chapter Summary (continued)The financial statements should present a complete picture of the results of operations and the condition of the business.16Chapter Summary (continued)The revenues and expenses for the accounting period must be matched in order to determine the net income or net loss accurately. This is known as the matching principle.17Chapter Summary (continued)The Merchandise Inventory account must be updated to show the value of the ending inventory.Determining the ending inventory involves counting all merchandise on hand, completing inventory sheets, computing the cost of each item, and computing the total cost of all the merchandise.18Chapter Summary (continued)Adjustments must be made for:InventorySuppliesInsuranceDepreciationUncollectible accounts19Chapter Summary (continued)The Merchandise Inventory account is adjusted by two entries: (a) debit Income Summary and credit Merchandise Inventory for the cost of the beginning inventory and (b) debit Merchandise Inventory and credit Income Summary for the cost of the ending inventory.20Chapter Summary (continued)An adjustment must be made for the amount of supplies used during the accounting period. The Supplies Expense account is debited, and the Supplies account is credited.21Chapter Summary (continued)When insurance is purchased, the amount paid is debited to an asset account -- the Prepaid Insurance account. At the end of each accounting period an adjustment must be made for expired insurance.22Chapter Summary (continued)The Insurance Expense account is debited, and the Prepaid Insurance account is credited.23Chapter Summary (continued)An adjustment must be made to record depreciation for each long-term asset at the end of the account period. A depreciation expense account is debited, and an accumulated depreciation account is credited.24Chapter Summary (continued)When a customer’s account is found to be uncollectible, it is written off. Allowance for Uncollectible Accounts is debited. Two accounts are credited --the Accounts Receivable account in the General Ledger and the customer’s account in the Accounts Receivable ledger.25Chapter Summary (continued)The ten-column worksheet has special sections for recording adjustments and preparing an adjusted trial balance.26 Investigating on the InternetAs a research assignment, access the WDC® web site and report sources of information that might concern worksheets.271. The Merchandise Inventory account must be updated to show the value of the ending inventory.2. Financial statements must provide an accurate picture of the financial condition of the business.3. When insurance is purchased, the amount paid is debited to an asset account -- the Prepaid Insurance account.Topic QuizAnswer the following true/false questions:TRUETRUETRUE28