ADJUSTINGACCOUNTSANDPREPARINGFINANCIALSTATEMENTS幻灯片.pptVIP

The second step in preparing a work sheet is to enter adjustments in the Adjustments columns. The adjustments shown are the same ones we recorded earlier. An identifying letter links the debit and credit of each adjusting entry. This is called keying the adjustments. After preparing a work sheet, adjusting entries must still be entered in the journal and posted to the ledger. The Adjustments columns provide the information for those entries. The adjusted trial balance is prepared by combining the adjustments with the unadjusted balances for each account. As an example, the Prepaid Insurance account has a $2,400 debit balance in the Unadjusted Trial Balance columns. This $2,400 debit is combined with the $100 credit in the Adjustments columns to give Prepaid Insurance a $2,300 debit in the Adjusted Trial Balance columns. The totals of the Adjusted Trial Balance columns confirm the equality of debits and credits. This step involves sorting account balances from the adjusted trial balance to their proper financial statement columns. Expenses go to the Income Statement Debit column and revenues to the Income Statement Credit column. Assets and withdrawals go to the Balance Sheet Statement of Owner’s Equity Debit column. Liabilities and owner’s capital go to the Balance Sheet Statement of Owner’s Equity Credit column. The difference between the totals of the Income Statement columns is net income or net loss. This occurs because revenues are entered in the Credit column and expenses in the Debit column. If the Credit total exceeds the Debit total, there is net income. If the Debit total exceeds the Credit total, there is a net loss. For FastForward, the Credit total exceeds the Debit total, giving a $3,785 net income. The net income from the Income Statement columns is then entered in the Balance Sheet and Statement of Owner’s Equity Credit column. Adding net income to the last Credit column implies that it is to be added to owner’s capital. If a loss occurs, it is ad