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Inventory figures in the unadjusted trial are for the beginning of Year

2007. The December 31, 2007, year-end inventories are $5,915 for food

and $2,211 for beverages.

This is a common year-end adjustment as we need to tie the balance sheet inventory account to the actual inventory counted in the restaurant.

Note: I have renamed the accounts from Purchases to cost of goods sold. However the amount in the accounts Before Adjustment is really PURCHASES.

Use the Inventory Equation to calculate the necessary adjustment to Cost of goods - food and Cost of goods - beverages

Using the information provided, as follows, (Helpful hint)

Food

Beverages

Beginning Inventory

6,128

3,207

Per text instructions and the unadjusted trial balance

+ Purchases

181,110

38,307

Per unadjusted trial balance

- Ending Inventory

(5,915)

(2,211)

Per text instructions - these are the physical counts

= Cost of goods sold

181,323

39,303

COGS per Trial Balance

181,110

38,307

Required adjustment

213

996

Increase COGS

Increase COGS

Professor's note: notice that the required adjustment is just the difference between the beginning and ending inventories.

If ending inventory is greater than the beginning inventory it means some of the purchases were NOT consumed and are NOT part of COGS so we need to reduce COGS

If ending inventory is less than the beginning inventory it means MORE of the purchases were consumed as well as ALL of last years inventory so we need to increase COGS.

Beginning Inventory

6,128

3,207

Ending Inventory

5,915

2,211

Net change

213

996

We used all of last year's inventory plus much of the new purchases.

Accrued payroll of $2,215 must be recognized as of December 31, 2007.

Why is accrued payroll necessary? The company owes the payroll to the employee as soon as they "clock-in". We recognize the expense and liability

now, not when it gets paid. This entry is very typical as the employees work the last week of the year but are not paid until the new (following) year.

This new account has been added to the bottom of the accountants worksheet by me (to assist you).

Depreciation on equipment and furnishings using the straight-line method

must be recognized.

We did this one in class. Straight-line method is:

(First Cost - Residual Value) / Life of the asset in years.

For the adjustment, Debit Depreciation expense and Credit Accumulated depreciation

These two accounts were added to the bottom of the accountants worksheet by me (to assist you).

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