lesson 6-1 creating a worksheet
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CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 6-1
Creating a Worksheet
CENTURY 21 ACCOUNTING © Thomson/South-Western
2
LESSON 6-1
TERMS REVIEW
fiscal period—the length of time for which a
business summarizes and reports financial
information
Each business chooses a fiscal period length that meets its
needs (monthly, quarterly, yearly)
Federal and state tax reports are based on one year, most
businesses use a one-year fiscal period
Financial information is always summarized and reported at
the end of a fiscal period
page 155
CENTURY 21 ACCOUNTING © Thomson/South-Western
TERMS REVIEW
work sheet—a columnar accounting form used to summarize
the general ledger information needed to prepare financial
statements
Accountants use a work sheet for four (4) reasons:
To summarize general ledger account balances to prove that debits
equal credits
To plan needed changes to general ledger accounts to bring
account balances up to date
To separate general ledger account balances according to the
financial statements to be prepared
To calculate the amount of net income or net loss for a fiscal period
A worksheet is a planning tool and is not considered a
permanent accounting record; therefore, it is prepared in
pencil
3
LESSON 6-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
trial balance—a proof of the equality of debits and
credit in a general ledger
The total of all debit account balances must equal the total of
all credit account balances
Information for the trail balance is taken from the
general ledger
General ledger account titles are listed on a trial
balance in the same order as they are listed on the
chart of accounts
ALL the account titles are listed, even if some accounts do
not have balances
4
LESSON 6-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
5
LESSON 6-1
PREPARING THE HEADING OF A
WORK SHEET page 153
Name of Company1
Name of Report2
Date of Report3
CENTURY 21 ACCOUNTING © Thomson/South-Western
6
LESSON 6-1
1. Write the general ledger
account titles.
2. Write the general ledger
debit account balances.
Write the general ledger
credit account balances.
4. Add both the Trial Balance
Debit and Credit columns.
3. Rule a single line across the
two Trial Balance columns.
5. Write each column’s total
below the single line.
6. Rule double lines across
both Trial Balance columns.
PREPARING A TRIAL BALANCE ON A
WORK SHEET page 154
1
2
4
3
5 6
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 6-2
Planning Adjusting Entries
on a Work Sheet
CENTURY 21 ACCOUNTING © Thomson/South-Western
8
LESSON 6-2
TERM REVIEW
Adjustments—changes recorded on a work sheet to
update general ledger accounts at the end of a fiscal
period
Matching Expenses with Revenue—is applied
when revenue from business activities and expenses
associated with earning that revenue are recorded in
the same accounting period
The assets of a business, such as supplies and prepaid
insurance, are used to earn revenue
The portions of assets consumed in order to each revenue
become expenses of the business
The portions consumed are no longer assets but are now
expenses
Therefore, adjustments must be made to both the asset and
expense accounts for supplies and prepaid insurance
page 161
CENTURY 21 ACCOUNTING © Thomson/South-Western
Planning Adjustments on a Work Sheet
Sometimes a business will pay cash for an expense
in one fiscal period, but the expense is not used until
a later period
The expense should be reported in the same fiscal
period that it is used to produce revenue
TechKnow buys supplies in quantity in August, but some of
the supplies are not used until September
Only the value of the supplies used in August should be
reported as expenses in August
In this way, August revenue and the supplies expense
associated with earning the August revenue are recorded in
the same account period
9
LESSON 6-2
CENTURY 21 ACCOUNTING © Thomson/South-Western
Planning Adjustments on a Work Sheet
In order to give accurate information on financial
statements, some general ledger account must be
brought up to date at the end of a fiscal period
TechKnow debits an asset account, Supplies, each time
supplies are bought
Supplies on hand are items of value owned by a business
until the supplies are used
The value of supplies that are used becomes an expense to
the business
However, recording an expense each time an individual
supply, such as a pencil, is used would be impractical
10
LESSON 6-2
CENTURY 21 ACCOUNTING © Thomson/South-Western
Planning Adjustments on a Work Sheet
Therefore, on August 31 the balance of the asset
account, Supplies, is the value of all supplies bought
rather than the value of only the supplies that have
not yet been used
The amount of supplies that have been used must be
deducted from the asset account, Supplies, and
recorded in the expense account, Supplies Expense
Likewise, the amount of Prepaid Insurance that has
been used during the fiscal period is also an expense
of the business—Insurance Expense
After the adjustments are made, the expenses incurred to
earn revenue are reported in the same fiscal period as the
revenue is earned and reported
11
LESSON 6-2
CENTURY 21 ACCOUNTING © Thomson/South-Western
4 Questions to Ask in Analyzing Adjustments
1. What is the balance of the asset account?
2. What should the balance be for this account?
3. What must be done to correct the account balance?
4. What adjustment is made?
1) Supplies balance? = $1,025 (what was bought)
2) Balance should be? = $310 (what is left)
3) What must be done? = Decrease by $715 (what was used)
4) What adjustment is made?
Debit Supplies Expense (a) $715
Credit Supplies (a) $715
12
LESSON 6-2
CENTURY 21 ACCOUNTING © Thomson/South-Western
13
LESSON 6-2
SUPPLIES ADJUSTMENT ON A
WORK SHEET
1
2
page 158
3
1. Write the debit amount.
2. Write the credit amount.
3. Label the two parts of this adjustment.
CENTURY 21 ACCOUNTING © Thomson/South-Western
14
LESSON 6-2
PREPAID INSURANCE ADJUSTMENT
ON A WORK SHEET page 159
1
23
1. Write the debit amount.
2. Write the credit amount.
3. Label the two parts of this adjustment.
CENTURY 21 ACCOUNTING © Thomson/South-Western
15
LESSON 6-2
PROVING THE ADJUSTMENTS COLUMNS
OF A WORK SHEET page 160
3. Rule double lines.
2. Add both the Adjustments Debit and Credit columns.
Write each column’s total.
1. Rule a single line.
1
3
2
CENTURY 21 ACCOUNTING © Thomson/South-Western
16
LESSON 6-2
PREPARING A WORK SHEET page 160 C
1. Write the heading.
2. Record the trial balance.
3. Record the supplies adjustment.
4. Record the prepaid insurance adjustment.
5. Prove the Adjustments columns.
6. Extend all balance sheet account balances.
7. Extend all income statement account balances.
8. Calculate and record the net income (or net loss).
9. Total and rule the Income Statement and Balance Sheet
columns.
CENTURY 21 ACCOUNTING © Thomson/South-Western
17
LESSON 6-2
CENTURY 21 ACCOUNTING © Thomson/South-Western
18
LESSON 6-2
1
CENTURY 21 ACCOUNTING © Thomson/South-Western
19
LESSON 6-2
(b) 10000
4
(b) 10000
(a) 71500
(a) 71500
3
4964001000015000
11000
10000102500120000
200005000
50000062500
35650021300
2800
30000
881500 881500 81500 81500 146600 356500 734900 525000
356500 734900
1000031000
110000
200005000
50000062500
6
11000
21300
2800
30000
356500
10000
71500
7
209900 209900Net Income 89
1
2
5
356500 734900
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 6-3
Extending Financial
Statement Information
on a Work Sheet
CENTURY 21 ACCOUNTING © Thomson/South-Western
21
LESSON 6-3
TERMS REVIEW
balance sheet—a financial statement that reports
assets, liabilities, and owner’s equity on a specific
date
income statement—a financial statement showing
the revenue and expenses for a fiscal period
net income—the difference between total revenue
and total expenses when total revenue is greater
net loss—the difference between total revenue and
total expenses when total expenses are greater
page 166
CENTURY 21 ACCOUNTING © Thomson/South-Western
22
LESSON 6-3
EXTENDING BALANCE SHEET ACCOUNT
BALANCES ON A WORK SHEET page 162
1. Debit balances without adjustments
2. Debit balances with adjustments
3. Credit balances without adjustments
3
2
1
CENTURY 21 ACCOUNTING © Thomson/South-Western
23
LESSON 6-3
EXTENDING INCOME STATEMENT ACCOUNT
BALANCES ON A WORK SHEET page 163
1. Sales balance
2. Expense balances without adjustments
3. Expense balances with adjustments
1
3
2
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 6-3
1. Single rule
2. Totals
3. Net income
RECORDING NET INCOME, AND
TOTALING AND RULING A WORK SHEET page 164
4. Extend net income 6. Totals
6 735
214
5. Single rule 7. Double rule
CENTURY 21 ACCOUNTING © Thomson/South-Western
25
LESSON 6-3
CALCULATING AND RECORDING A NET
LOSS ON A WORK SHEET page 165
2. Totals
3. Net loss
4. Extend net loss
1. Single rule2
1
3
4
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 6-4
Finding and Correcting
Errors on the Work Sheet
CENTURY 21 ACCOUNTING © Thomson/South-Western
Accounting Errors
Some errors in accounting records are not
discovered until a work sheet is prepared
An omission may not be discovered until the work
sheet’s trial balance does not balance
Information may be transferred incorrectly from
general ledger accounts to the work sheet’s trial
balance
Recording adjustment information incorrectly
Adding columns incorrectly
Errors may be made in extending amounts to the
Income and Balance Sheet columns
27
LESSON 6-4
CENTURY 21 ACCOUNTING © Thomson/South-Western
Any errors on a work sheet must be corrected
before any further work is completed
If an incorrect amount is found on a work
sheet, erase the error and replace it with the
correct amount
If an amount is written in an incorrect column,
erase the amount and record it in the correct
column
28
LESSON 6-4
CENTURY 21 ACCOUNTING © Thomson/South-Western
Checking for Typical Calculation Errors
When two column totals are not in balance, subtract
the smaller total from the larger total to find the
difference
Check the difference between the two amounts
against the following guides: (pg. 167)
1. The difference is 1, such as $.01, $.10, $1.00, or
$10.00—the error is most likely in addition, add the
columns again
2. The difference can be divided evenly by 2—check
in the trial balance columns and make sure it is
recorded in the correct Debit or Credit column.
If not found in work sheet, check the general ledger
accounts
29
LESSON 6-4
CENTURY 21 ACCOUNTING © Thomson/South-Western
3. The difference can be divided evenly by 9--look
for transposed numbers such as 54 written as 45 or
19 written as 91
Check for a “slide” which occurs when numbers are moved
to the right or left I an amount column: $12.00 is recorded
as $120.00
4. The difference is an omitted amount--look for an
amount equal to the difference.
If the difference is $50.00, look for an account balance of
$50.00 that has not been extended
Look for any $50.00 amount on the work sheet and
determine if it has been handled correctly
Look in the accounts and journals for $50.00 amount, and
check if that amount has been handled correctly
30
LESSON 6-4
CENTURY 21 ACCOUNTING © Thomson/South-Western
Checking for Errors in the Work Sheet
Check for Errors in the Trial Balance
Check for Errors in the Adjustments
Check for Errors in the Income
Statement and Balance Sheet Columns
For all 3 cases, correct any errors found
and add the columns again
31
LESSON 6-4
CENTURY 21 ACCOUNTING © Thomson/South-Western
32
LESSON 6-4
CORRECTING AN ERROR IN POSTING TO
THE WRONG ACCOUNT page 168
1. Draw a line through the entire incorrect entry. Recalculate the account
balance and correct the work sheet.
2 Correct entry
1 Incorrect entry
2. Record the posting in the correct account. Recalculate the account
balance, and correct the work sheet.
CENTURY 21 ACCOUNTING © Thomson/South-Western
33
LESSON 6-4
CORRECTING AN INCORRECT AMOUNT
1
2
3
page 169
1. Draw a line through the incorrect amount.
2. Write the correct amount just above the correction in the same space.
3. Recalculate the account balance, and correct the account balance on
the work sheet.
CENTURY 21 ACCOUNTING © Thomson/South-Western
34
LESSON 6-4
1
2
3
CORRECTING AN AMOUNT POSTED TO
THE WRONG COLUMN
5 4 6
page 169
6. Recalculate the account balance, and correct the work sheet.
5. Record the posting in the correct amount column.
4. Draw a line through the incorrect item in the account.
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