Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 1

Chapter 18Adjustments and the

Ten-Column Work Sheet

What You’ll Learn Describe the parts of a ten-column work sheet. Generate trial balances and end-of-period

adjustments. Determine which general ledger accounts to adjust. Calculate the adjustments. Prepare a ten-column work sheet. Journalize the adjustments. Define the accounting terms introduced in this

chapter.

Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 2

Chapter 18, Section 1Identifying Accounts to Be Adjusted and

Adjusting Merchandise Inventory

What Do You Think?Why is it important to have up-to-date balances at period end?

Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 3

Main IdeaAdjustments transfer the cost of “used up” assets to expense accounts. Adjustments for changes in merchandise inventory are made directly to the Income Summary account.

You Will Learn the purpose of the ten-column work sheet. how to use the ten-column work sheet for

adjustments.

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Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 4

Key Terms adjustment beginning inventory ending inventory physical inventory

Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory

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Completing End-of-Period WorkIn addition to account totals, managers, stockholders, and creditors need to know net income and the value of stockholders’ equity to make sound business decisions.

In this chapter, you will learn how to prepare a ten-column work sheet for a merchandising business.

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The Ten-Column Work SheetThe ten-column work sheet is prepared in the same way as the six-column work sheet, but the ten-column work sheet has five amount sections:

Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet

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Completing the Trial Balance SectionA trial balance is used to prove the general ledger. Follow these steps to prepare the trial balance:

Enter the account name and number for each account in the Account Name and Number columns.

Enter the balance in the Debit or Credit column. Rule the Debit and Credit columns. If the Debit and Credit columns are proven, draw a double-

rule line across both columns.

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Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 8

SECTION 18.1Completing the Trial Balance Section

The Trial Balance section of the Work Sheet

Glencoe Accounting Unit 4 Chapter 18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 9

Calculating AdjustmentsSome changes in account balances result from internal business operations or the passage of time. Examples are Supplies and Prepaid Insurance.

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Permanent Accounts and Temporary AccountsA change in an account balance caused by the internal operations or the passage of time is recorded through an adjustment. At the end of the period, adjustments are made to transfer the costs of assets consumed from asset accounts to the appropriate expense accounts.

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Determining the Adjustments NeededIf a balance is not up to date as of the last day of the fiscal period, it must be adjusted.

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Adjusting the Merchandise Inventory AccountBeginning inventory is the merchandise a business has on hand at the beginning of a period. Ending inventory is the merchandise on hand at the end of a period. The asset account Merchandise Inventory’s balance changes only when a physical inventory, an actual count of all merchandise on hand and available for sale, is taken.

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Calculating the Adjustment for Merchandise InventoryWhen calculating the adjustment for Merchandise Inventory, you need to know

the account’s balance, and the physical inventory amount.

Purchases and sales during the period will decrease the account balance. The reduction in inventory is recorded as an adjustment in the accounting records.

Identifying Accounts to Be Adjusted and Adjusting Merchandise Inventory

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SECTION 18.1 Calculating the Adjustment for Merchandise Inventory

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Entering the Adjustment for Merchandise Inventory on the Work SheetAdjustments are entered in the Adjustments columns of the work sheet. To do this, follow these steps:

In the Adjustments Debit column, enter the debit amount of the adjustment on the Income Summary line.

In the Adjustments Credit column, enter the credit amount of the adjustment on the Merchandise Inventory line.

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Key Terms Review adjustment

An amount that is added to or subtracted from an account balance to bring that balance up to date.

beginning inventory

The merchandise a business has on hand at the beginning of a period.

ending inventory

The merchandise a business has on hand at the end of a period.

physical inventory

An actual count of all merchandise on hand and available for sale.

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