1. Chapter 6—Work Sheet for a Service Business
page 155
Objectives:
Define accounting terms related to a work sheet for a service business organized as a proprietorship
Identify accounting concepts and practices related to a work sheet for a service business organized as a proprietorship
Prepare a heading and a trial balance on a work sheet
Plan adjustments for supplies and prepaid insurance
Complete a work sheet for a service business organized as a proprietorship
Identify selected procedures for finding and correcting errors in accounting records
LESSON 6-1

2. Chapter 6: TERMS REVIEW fiscal period work sheet trial balance
page 155
fiscal period
work sheet
trial balance
Adjustments
balance sheet
income statement
net income
net loss
LESSON 6-1

3. LESSON 6-1: Creating a Worksheet
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LESSON 6-1: Creating a Worksheet
Accounting Concept—Consistent Reporting
Is applied when the same accounting procedures are followed in the same way in each accounting period
Without consistent reporting, it would be very difficult to compare results from year to year
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4. LESSON 6-1
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Fiscal Periods
Fiscal Periods—the length of time for which a business summarizes and reports financial information
Most businesses use a one year fiscal period
The accounting concept Accounting Period Cycle is applied when changes in financial information are reported for a specific period of time in the form of financial statements
Financial information is always summarized and reported at the end of a fiscal period
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5. LESSON 6-1
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Work Sheet
Work Sheet—a columnar accounting form used to summarize the general ledger information needed to prepare financial statements; is a planning document
Accountants use a work sheet for four 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
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6. PREPARING THE HEADING OF A WORK SHEET
page 153
Who—name of company
What—name of report
When—date of report
Name of Company 1
Name of Report 2
Date of Report 3
LESSON 6-1

7. PREPARING A TRIAL BALANCE ON A WORK SHEET
page 154 2
1. Write the general ledger account titles.
2. Write the general ledger debit account balances. Write the general ledger credit account balances. 1 4
3. Rule a single line across the two Trial Balance columns.
4. Add both the Trial Balance Debit and Credit columns.
5. Write each column’s total below the single line. 3
6. Rule double lines across both Trial Balance columns. 5 6
LESSON 6-1

8. PREPARING A TRIAL BALANCE ON A WORK SHEET
page 154
Trial Balance—a proof of the equality of debits and credits in a general ledger
Information for the trial balance is taken from the general ledger.
All accounts are listed in chart of accounts order on a work sheet whether they have a balance or not.
Account titles are written in full unless there is not enough room. If there is not enough room, abbreviations can be used.
Accuracy is important when copying account balances to the work sheet columns. .
LESSON 6-1

9. LESSON 6-2
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LESSON 6-1
Let’s do Work Together 6-1 on textbook page 155 and On Your Own 6-1 on textbook page 156 using Aplia.
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10. LESSON 6-2: Planning Adjusting Entries on a Work Sheet
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LESSON 6-2: Planning Adjusting Entries on a Work Sheet
The accounting concept 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.
In order to give accurate information on financial statements, some general ledger accounts must be brought up to date by the end of a fiscal period.
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11. LESSON 6-2
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Adjustments
Adjustments are changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period.
The assets of a business are used to earn revenue. The portions of the assets consumed in order to earn revenue become expenses of the business. Adjustments must be made to both the asset and expense accounts for supplies and prepaid insurance.
A work sheet is used to plan adjustments. Changes are not made in general ledger accounts until adjustments are journalized and posted. The accuracy of the planning for adjustments is checked on a work sheet before adjustments are actually journalized.
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12. Adjustments Four questions used to analyze each adjustment:
LESSON 6-2
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Adjustments
Four questions used to analyze each adjustment:
What is the balance of Supplies or Prepaid Insurance?
What should the balance be for this account?
What must be done to correct the account balance?
What adjustment is made?
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13. SUPPLIES ADJUSTMENT ON A WORK SHEET
page 158 2 3 1
1. Write the debit amount.
2. Write the credit amount.
3. Label the two parts of this adjustment.
LESSON 6-2

14. SUPPLIES ADJUSTMENT ON A WORK SHEET
page 158
The amount of the adjustment is the amount of supplies used. This amount will also be the balance of Supplies Expense after the adjusting entry. After the adjusting entry, the balance in the asset account, Supplies, is the cost of the supplies still on hand.
LESSON 6-2

15. PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET
page 159 2 3 1
1. Write the debit amount.
2. Write the credit amount.
3. Label the two parts of this adjustment.
LESSON 6-2

16. PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET
page 159
The amount of the adjustment is the amount of insurance coverage used. This amount will also be the balance of Insurance Expense after the adjusting entry. After the adjusting entry, the balance in the asset account, Prepaid Insurance, is the cost of the insurance coverage remaining.
LESSON 6-2

17. PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET
page 160 1 2 3
1. Rule a single line.
2. Add both the Adjustments Debit and Credit columns. Write each column’s total.
If debits equal credits for each adjustment, the total debits and total credits in the Adjustments column must also equal.
3. Rule double lines.
LESSON 6-2

18. PREPARING A WORK SHEET 1. Write the heading.
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.
LESSON 6-2

19. Lesson 6-2
Let’s do Work Together 6-2 on textbook page 161 and On Your Own 6-2 on textbook page 161 using Aplia.
LESSON 6-1

20. Lesson 6-3: Extending Financial Statement Information on a Work Sheet
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Lesson 6-3: Extending Financial Statement Information on a Work Sheet
In the Accounting Concept Accounting Period Cycle, two financial statements are prepared from information on the work sheet.
Balance Sheet—a financial statement that reports assets, liabilities, and owner’s equity on a specific date.
The work sheet is used to prepare the balance sheet.
All accounts extended to the Balance Sheet columns are at the top of the work sheet, from Cash through the owner’s drawing account. (anything above Income Summary)
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21. EXTENDING BALANCE SHEET ACCOUNT BALANCES ON A WORK SHEET
LESSON 6-3
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EXTENDING BALANCE SHEET ACCOUNT BALANCES ON A WORK SHEET
page 162 2 1 3
1. Debit balances without adjustments
2. Debit balances with adjustments
3. Credit balances without adjustments
LESSON 6-3
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22. EXTENDING INCOME STATEMENT ACCOUNT BALANCES ON A WORK SHEET
page 163
Income Statement—a financial statement showing the revenue and expenses for a fiscal period
The work sheet will be used to prepare the income statement.
All accounts extended to the Income Statement columns are at the bottom of the work sheet, from Sales through the last expense account (anything below Income Summary).
It is very important to extend balances accurately.
LESSON 6-3

23. EXTENDING INCOME STATEMENT ACCOUNT BALANCES ON A WORK SHEET
page 163 1 2 3
1. Sales balance
2. Expense balances without adjustments
3. Expense balances with adjustments
LESSON 6-3

24. RECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEET
page 164
Net Income—the difference between total revenue and total expenses when total revenue is greater
Before the work sheet is complete, net income must be calculated and the work sheet must be totaled and ruled.
LESSON 6-3

25. RECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEET
page 164 4 1 2 3 5 6 7
1. Single rule
2. Totals
4. Extend net income
6. Totals
3. Net income
5. Single rule
7. Double rule
LESSON 6-3

26. CALCULATING AND RECORDING A NET LOSS ON A WORK SHEET
page 165 1 2 3 4
1. Single rule
2. Totals
3. Net loss
Net Loss—the difference between total revenue and total expenses when total expenses are greater
4. Extend net loss
LESSON 6-3

27. LESSON 6-4
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LESSON 6-3
Let’s do Work Together 6-3 on textbook page 166 and On Your Own 6-3 on textbook page 166 using Aplia.
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28. Lesson 6-4: Finding and Correcting Errors on the Work Sheet
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Lesson 6-4: Finding and Correcting Errors on the Work Sheet
Any errors found on a work sheet should be corrected before any further work is completed. If an incorrect amount is found on a work sheet, correct it. If an amount is written in an incorrect column, record it in the correct column.
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29. Checking for Typical Calculation Errors
LESSON 6-4
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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:
The difference is 1, such as $.01, $.10, $1.00, or $10.00—the error is most likely in addition
The difference can be divided evenly by 2—check to see if it is recorded in the correct column in the journal or in an account
The difference can be divided evenly by 9—could be a transposed error or a slide error
The difference is an omitted amount—could be that it has not been extended
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30. Checking for Errors in the Work Sheet
LESSON 6-4
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Checking for Errors in the Work Sheet
Check for Errors in the Trial Balance Columns
Have all general ledger account balances been copied correctly?
Have all general ledger account balances been recorded in the correct Trial Balance column?
Check for Errors in the Adjustments Column
Do the debits equal the credits for each adjustment?
Is the amount for each adjustment correct?
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31. Checking for Errors in the Work Sheet
LESSON 6-4
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Checking for Errors in the Work Sheet
Check for Errors in the Income Statement and Balance Sheet Columns
Has each amount been copied correctly when extended to the Income Statement or Balance Sheet column?
Has each account balance been extended to the correct Income Statement or Balance Sheet column?
Has the net income or net loss been calculated correctly?
Has the net income or net loss been recorded in the correct Income Statement or Balance Sheet column?
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32. CORRECTING AN ERROR IN POSTING TO THE WRONG ACCOUNT
page 168 2
Correct entry 1
Incorrect entry
1. Draw a line through the entire incorrect entry. Recalculate the account balance and correct the work sheet.
2. Record the posting in the correct account. Recalculate the account balance, and correct the work sheet.
LESSON 6-4

33. CORRECTING AN INCORRECT AMOUNT
page 169 2 1 3
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.
LESSON 6-4

34. CORRECTING AN AMOUNT POSTED TO THE WRONG COLUMN
page 169 2 1 3 5 4 6
4. Draw a line through the incorrect item in the account.
5. Record the posting in the correct amount column.
6. Recalculate the account balance, and correct the work sheet.
LESSON 6-4

35. Checking for Errors in Journal Entries
Do debits equal credits in each journal page?
Is each journal entry amount recorded in the correct journal column?
Is information in the Account Title column correct for each journal entry?
Are all of the journal amount column totals correct?
Does the sum of debit column totals equal the sum of credit column totals in the journal?
Have all transactions been recorded?
The best way to prevent errors is to work carefully at all times.
LESSON 6-1

36. Lesson 6-4
Let’s do Work Together 6-4 on textbook page 170 and On Your Own 6-4 on textbook page 170 using Aplia.
LESSON 6-1

37. Chapter 6 Assignments Chapter 6 Study Guide Problems:
6-1 Application Problem
6-2 Application Problem
6-3 Application Problem
6-4 Application Problem
6-5 Mastery Problem
6-6 Challenge Problem
LESSON 6-1