lesson 6-1 creating a worksheet

CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 6-1

Creating a Worksheet


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


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


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


5

LESSON 6-1

PREPARING THE HEADING OF A

WORK SHEET page 153

Name of Company1

Name of Report2

Date of Report3


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


LESSON 6-2

Planning Adjusting Entries

on a Work Sheet


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


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



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



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


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


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.


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.


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


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.


17

LESSON 6-2


18

LESSON 6-2

1


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


LESSON 6-3

Extending Financial

Statement Information

on a Work Sheet


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


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


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


24

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


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


LESSON 6-4

Finding and Correcting

Errors on the Work Sheet


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


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


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


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


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


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.


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.


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.

lesson 6-1 creating a worksheet

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