1. Accounting November 7, 2014 Begin Chapter 6 notes WT/OYO/Application for 6-1 and 6-2

2. Work Sheet for a Service Business General ledger accounts must be analyzed, summarized and reported in a meaningful way Consistent Reporting – when the same accounting procedures are followed in the same way in each accounting period  Example: Report # of deliveries vs. amount of revenue received for the deliveries made

3. Creating a Work Sheet Fiscal period – length of time for which a business summarizes and reports financial information  AKA: Accounting period Accounting Period Cycle – when changes in financial information are reported for a specific period of time in the form of financial statements Each business chooses a fiscal period length that meets its needs Fiscal period can begin on any date

4. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 4 LESSON 8-3 ACCOUNTING CYCLE FOR A SERVICE BUSINESS page 217 2 3 4 5 6 1 7 8 8.Prepare post-closing trial balance 7.Post adjusting and closing entries 6.Journalize adjusting and closing entries 5.Prepare financial statements 4.Prepare work sheet 3.Post to the ledger 2.Journalize 1.Analyzes transactions

5. Creating a Work Sheet Work sheet – an accounting form used to summarize the general ledger information needed to prepare financial statements Accountants use a work sheet for four reasons:  Summarize general ledger account balances to prove that debits equal credits  Plan needed changes to general ledger accounts to bring account balances up to date  Separate general ledger balances according to the financial statements to be prepared  Calculate the amount of net income or net loss for a fiscal period

6. Creating a Work Sheet Journals and ledgers are permanent records of a business and are prepared by ink or printed by a computer. However, a work sheet is a planning tool and is not considered a permanent accounting record. (Can be prepared in pencil!)

7. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 6-2

8. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 6-1 PREPARING THE HEADING OF A WORK SHEET page 153 Name of Company 1 Name of Report 2 Date of Report 3

9. Preparing a Trial Balance on a Work Sheet Trial balance – A proof of equality of debits and credits in a general ledger Information for the trial balance is taken from the general ledger General ledger account titles are listed on a trial balance in the same order as the chart of accounts All the account titles are listed, even if some accounts do not have balances Pg.154

10. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 10 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

11. Assignment 6-1 Work Together & On Your Own

12. 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 Matching Expenses with Revenue – when revenue from business activities and expenses associated with earning that revenue are recorded in the same accounting period

13. Planning Adjustments on a Work Sheet Example:  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.

14. Planning Adjustments on a Work Sheet Some general ledger account must be brought up to date at the end of a fiscal period. Supplies:  TechKnow debits an asset account, Supplies, each time supplies are bought.  Supplies on hand are items of value owned by a business until used.  The value of supplies that are used becomes an expense to the business.

15. Planning Adjustments on a Work Sheet Supplies continued:  Recording an expense each time an individual supply is used would be impractical.  Therefore, at the end of the month, the balance of 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 Supplies and recorded as Supplies Expense.

16. Planning Adjustments on a Work Sheet Prepaid Insurance:  The amount of insurance that has been used during the fiscal period is also an expense of the business.  When the insurance premium for a year of insurance coverage is paid, the entire amount is debited to Prepaid Insurance.  Recording each day’s amount of insurance used is impractical.  Therefore, at the end of a fiscal period, the amount of insurance coverage used must be deducted from Prepaid Insurance and recorded as Insurance Expense.

17. Planning Adjustments on a Work Sheet Adjustments – changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period Adjustments must be made to both the asset and expense accounts for supplies and insurance

18. Planning Adjustments on a Work Sheet 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 (Procedures for journalizing adjustments are described in Chapter 8)

19. Supplies Adjustment on a Work Sheet To analyze the adjustment, ask yourself the following four questions: 1. What is the balance of Supplies? 2. What should the balance be for this account? 3. What must be done to correct the account balance? 4. What adjustment is made? (Pg. 158) Same for Prepaid Insurance pg. 159

20. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 20 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.

21. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 21 LESSON 6-2 PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET page 159 1 2 3 1.Write the debit amount. 2.Write the credit amount. 3.Label the two parts of this adjustment.

22. PREPARING A WORK SHEET 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.

23. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 23 LESSON 6-2 (b) 10000 4 (a) 71500 3 496400 10000 15000 11000 10000 102500 120000 20000 5000 500000 62500 356500 21300 2800 30000 881500 81500 146600356500734900525000 356500734900 496400 10000 15000 10000 31000 110000 20000 5000 500000 62500 6 11000 21300 2800 30000 356500 10000 71500 7 209900 Net Income 8 9 1 2 5 356500734900