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LESSON 6-3 Extending Financial Statement Information on a Work Sheet
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Objectives Define Accounting terms related to a work sheet for a services business organization organized as a proprietorship. Identify accounting concepts and practices related to a work sheet for a service business organized as a proprietorship. Complete a Work Sheet for a service business organized as a proprietorship
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3 LESSON 6-2 What kinds of accounts will be moved to the Balance Sheet columns and what kinds of accounts will be moved to the Income Statement Columns
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New Terminology 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
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Here we go! When extending balances, assets, liabilities and owner’s equity, they always go in the Balance Sheet Reminder!!! The work sheet will be 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.
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6 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
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EXTENDING BALANCE SHEET ACCOUNT BALANCES ON A WORK SHEET FYI…A work sheet is prepared in manual accounting to adjust the accounts and sort amounts needed to prepare financial statements. However, in automated accounting, adjustments are prepared from the trial balance, and the software automatically generates the financial statements with no need for a work sheet.
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Extending Income Statement Account Balances When extending balances, revenue and expenses always go in the Income Statement columns. REMINDER: A worksheet will be used to prepare the income statement. There are three steps for extending income statement account balances on a work sheet. All accounts that are extended to the income statement columns are at the bottom of the work sheet, from Sales through the last Expense account.
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9 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
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RECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEET Remember Net Income? Net Income: the difference between total revenue and total expenses when total revenue is greater. There are SEVEN (7) Steps for calculating and recording net income on a work sheet and totaling and ruling a work sheet.
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11 LESSON 6-3 1.Single rule 2.Totals 3.Net income RECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEET 4.Extend net income6.Totals 6 7 3 5 2 1 4 5.Single rule7.Double rule page 164
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CALCULATING AND RECORDING A NET LOSS ON A WORK SHEET Remember Net Loss? Net Loss: the difference between total revenue and total expenses when total expenses are greater There are FOUR (4) Steps for calculating and recording new loss on a work sheet.
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13 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 rule 2 1 3 4
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14 LESSON 6-3 TERMS REVIEW balance sheet income statement net income net loss page 166
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Exit Ticket Which Accounts are extended into the Balance Sheet columns of the work sheet? Which Accounts are extended into the Income Statement columns of the work sheet? In which Balance Sheet column do you record net income on the work sheet? In which Balance Sheet column do you record net loss on the work sheet?
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EXIT TICKET Answers Which Accounts are extended into the Balance Sheet columns of the work sheet? Asset, Liability and Owner’s Equity accounts Which Accounts are extended into the Income Statement columns of the work sheet? Revenue and Expense accounts In which Balance Sheet column do you record net income on the work sheet? Balance Sheet Credit Column In which Balance Sheet column do you record net loss on the work sheet? Balance Sheet Debit Column.
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LESSON 6-4 Finding and Correcting Errors on the Work Sheet
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Objectives Identify selected procedures for finding and correcting errors in accounting records.
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What If ? ? ? What might happen if the columns of a work sheet do not equal? Would you leave it and go on, or find the error before going on? Answer: Common errors may be discovered while preparing a worksheet.
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Preview In this lesson, specific procedures will be discussed that will help find errors in the accounting records.
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Here we go! If errors are found while preparing the work sheet, the errors must be corrected as shown in this lesson. It is very important to work accurately and prevent errors whenever possible. This lesson is designed to provide you with some quick and effective ways of finding, correcting, and preventing errors when preparing a work sheet. Many of the suggestions provided today can be applied while performing other types of accounting and non accounting calculations.
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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 four guides.
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Checking for Typical Calculation Errors There are four methods of finding errors described on page 167. 1. The difference is 1 2. The difference can be divided evenly by 2 3. The difference can be divided evenly by 9 4. The difference is an omitted account.
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The Difference Is 1 For example, if the totals of the two columns are debit $14,657 and Credit $14658, the difference between the two columns is $1.00. The error is most likely in addition. Add the columns again.
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The Difference Can Be Divided Evenly By 2 For example, the difference between two column totals is $48, which can be divided by 2 with no remainder. Look for $24 amount in the Trial Balance columns of the work sheet. If the amount is found, check to make sure it has been recorded in the correct Debit or Credit column.
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The Difference Can Be Divided Evenly By 2 A $24 debit amount recorded in a credit column results in a difference between column totals of $48. If the error is not found on the work sheet, check the general ledger accounts and journal entries. An entry for $24 may have been recorded in an incorrect column in the journal or in an account.
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The Difference Can Be Divided Evenly by 9 For example, the difference between two columns is $45. which can be divided by 9 with no remainder. When the difference can be divided equally by 9, look for transposed numbers such as 54 or 19 written as 91. Also, check for a “Slide”. A “Slide” occurs when numbers are moved to the right or left in an amount column. For example, $12 is recorded as $120 or $350 is recorded as $35.
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The Difference Is An Omitted Account. Look for an amount equal to the difference. If the difference is $50, look for an account balance of $50 that has not been extended. Look for any $50 amount on the work sheet and determine if it has been handled correctly. Look in the accounts and journals for a $50 amount and check if that amount has been handled correctly. Failure to record a $50 account balance will make a work sheet’s column totals differ by $50.
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Checking For Errors in the Work Sheet. 1. Check for Errors in the Trial Balance Column 2. Check for Errors in the Adjustment Columns 3. Check for Errors in the Income Statement and Balance Sheet Columns.
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Check for Errors in the Trial Balance Column 1. Have all general ledger account balances been copied in the trial balance column correctly? 2. Have all general ledger account balances been recorded in the correct Trial Balance Columns?
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Check for Errors in the Adjustment Columns Do the Debits equal the Credits for each adjustment? Use the small letters that label each part of an adjustment to help check accuracy and equality of debits and credits. Is the amount for each adjustment correct?
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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 columns? Has the net income or net loss been recorded in the correct Income Statement or Balance Sheet columns? Has the net income or net loss been recorded in the correct Income Statement or Balance Sheet Columns.
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33 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.
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34 LESSON 6-4 CORRECTING AN INCORRECT AMOUNT1 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. 3 Steps for correcting an incorrect amount in the account.
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35 LESSON 6-4 1 2 3 CORRECTING AN AMOUNT POSTED TO THE WRONG COLUMN546 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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Check Your Understanding What is the first step in checking for arithmetic errors when two column totals are not in balance? What is the one way to check for an error caused by transposed numbers? What term is used to describe an error that occurs when numbers are moved to the right or left in an Amount Column.
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Check Your Understanding What is the first step in checking for arithmetic errors when two column totals are not in balance? Subtract the smaller total from the larger total to find the difference.
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Check for Understanding. What is the one way to check for an error caused by transposed numbers? Answer- The difference between the two column totals can be divided evenly by 9.
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Check for Understanding What term is used to describe an error that occurs when numbers are moved to the right or left in an Amount Column. Answer: A slide
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Aplia Work Together 6-4 On Your own 6-4 Application 6-4 Chapter 6 Study Guide Century21accounting.com Tutorial Test for Chapter 6 Exit Ticket
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