LECTURE NOTES FOR CHAPTER 3
IF YOU HAVE NOT MEMORIZED THE CHART ON PAGE 1 OF THE
CHAPTER 2 LECTURE NOTES, “HOW TO INCREASE THE DIFFERENT
TYPES OF ACCOUNTS”
NONE OF THIS IS GOING TO MAKE ANY SENSE.
Toward the end of chapter 2, we were so proud of ourselves because we got our trial
balance to balance .
Some people think that if the trial balance balances then everything
must be correct.
Some of the accounts in our ledger are not correct.
because we made a mistake but through the passage of time, the accounts are outdated.
Again, not wrong but out of date.
Question: If we have some accounts that are out of
date, what do you think we should do about it? Heres a great idea; lets bring them up to
So here is what we’re gonna do: Go through the ledger, identify those accounts that
are out of date, and bring them up to date with
an adjusting entry,
which just happens to be the topic of chapter 3.
We are gonna be cussing and discussing several different adjusting entries. However, as
different as they are, they all have one thing in common and that is:
Everyone of them
involves an income statement account and a balance sheet account.
Read that last statement again.
Just to be sure, read it again.
Lets use the trial balance on page 104 as our starting point.
The first account that we see
that is out of date is “supplies”.
THE ADJUSTING ENTRY FOR SUPPLIES
On the unadjusted trial balance at the bottom of page 104, third item from the top is the
The balance of the account is $2,000.
Lets talk about what that
number represents, where it came from, and what happens next.
Here’s the story.
in the month the boss bought $2,000 of
office supplies (pencils, paper clips and rubber
bands) and put them in the supply cabinet and told the employees to help themselves to
the items. When the supplies were purchased, we made this entry in the journal
After making the journal entry, we post it to the Supplies account in the ledger. Like so;
The item to the left is called a “T” account because
of its shape.
Although it looks different, it serves
the same purpose as the accounts in the general
ledger (see page 67) The only difference is that
this version has the balance at the bottom,
whereas the version in the book has the balance to
The $2,000 balance in the Supplies account means that we have supplies that cost us that
As time goes by, the employees use some of the supplies in their job.