1. A Worksheet For a service business
Accounting – Chapter 6

2. CONCEPT: Consistent Reporting
The application of the same accounting procedures for each accounting period.
Why is this important?
Comparison
Accuracy

3. Fiscal Period
The length of time for which a business summarizes and reports its financial information
CONCEPT: Accounting Period Cycle
Changes in financial information are reported for a specific period of time in the form of financial statements

4. Determining the Fiscal Period
There is no set rule about the length of a company’s fiscal period
How often do you want to report financial information?
Problems if the cycle is too long
Problems if the cycle is too short
Analysis can be conducted at anytime
Aided by computer based accounting programs

5. Setting the Start Date Considerations for starting a fiscal period
Often follows the calendar year
Must be done at least once a year
Preparation of financial statements takes time
Examine business activity
Is it better to start/end your fiscal period at a busy or a slow time in a company’s business cycle?
Sole proprietorship income is personal income
Tax considerations

6. Work Sheet
A columnar accounting form used to summarize general ledger information needed to prepare financial statements
Summarize general ledger 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/loss for the period

7. Work Sheet Basics The Work Sheet is a planning tool Heading
Must be prepared in pencil
Heading
Three lines
Name of Company
Name of Report
Date of Report
For the ____ended _____

8. The Trial Balance
A proof of the equality of debits and credits in a general ledger
If quality records are kept, the general ledger is all that is needed to prepare the trial balance
The general journal and source documents might be required if errors are discovered
Errors are found when the trial balance doesn’t result in debits equaling credits

9. Preparing the Trial Balance (pg. 154)
Write the heading on the worksheet
Write the general ledger account (in order of account number) debit balances in the Trial Balance Debit column
Write the general ledger account credit balances in the Trial Balance Credit column
Accounts with no balances are included, but no amounts are entered in the Trial Balance Columns (Income Summary, Supplies Expense and Insurance Expense)

10. Preparing the Trial Balance (cont’d) (pg. 154)
Rule a single line across the two Trial Balance columns below the last line on which an account title is written
Showss that each column is to be added
Add the Trial Balance Debit and the Trial Balance Credit columns.
If they are the same, then they are in balance
If not, recheck your math to locate the error
The remainder of the worksheet cannot be completed until the Trial Balance columns are proved

11. Preparing the Trial Balance (cont’d) (pg. 154)
Write each column’s total below the single ruled line
Rule double lines across both Trial Balance columns. The double lines mean that the Trial Balance column totals have been verified as correct
Complete WT 6.1 with the class
WT61-63.xls

12. Accounting CONCEPT Matching Expenses with Revenue
Revenue from business activities and expenses associated with earning that revenue are recorded in the same accounting period
Provides accuracy in reporting
Provides information about level of expenses required to generate level of revenue

13. Adjustments
Changes recorded on a work sheet to update ledger accounts at the end of a fiscal period
Enables a company to apply the Matching Revenue with Expenses concept
Brings the general ledger accounts up to date
What is the value of supplies used during a specific period?
Transform from assets to expenses
How much prepaid insurance was consumed during a specific period?
Any others?

14. Adjustment Basics Adjustments are recorded on the worksheet
Changes are not made in general ledger accounts until adjustments are journalized and posted (chapter 8)
Must check for accuracy first!

15. Adjustment to Supplies (pg 158)
Determine the actual supplies balance at the end of the fiscal period (HOW?)
The amount of the adjustment is the Account balance minus the actual balance
Supplies must be credited (reduced) by the amount of the adjustment
Supplies Expense is debited by the amount of the adjustment (the amount used)

16. Adjustment to Supplies (pg 158)
Write the adjustment amount in the Adjustments debit column for Supplies Expense
Write the adjustment amount in the Adjustments credit column for Supplies
Label the two parts of this adjustment with (a) to identify the two amounts are part of the same adjustment

17. Adjustment to Prepaid Insurance (pg 159)
Determine the actual prepaid insurance balance at the end of the fiscal period (HOW?)
The amount of the adjustment is the Account balance minus the actual balance
Prepaid Insurance must be credited (reduced) by the amount of the adjustment
Insurance Expense is debited by the amount of the adjustment (the amount used)

18. Adjustment to Prepaid Insurance (pg 159)
Write the adjustment amount in the Adjustments debit column for Insurance Expense
Write the adjustment amount in the Adjustments credit column for Prepaid Insurance
Label the two parts of this adjustment with (b) to identify the two amounts are part of the same adjustment

19. Proving Adjustments
Once all adjustments have been entered the equality of the debits and credits must be proved
Rule a single line across the two Adjustment Columns on the same line as the single line for the Trial Balance columns
Add both the Adjustment columns
If they are equal, rule a double line across both totals to indicate that the equality has been verified
If not, locate and correct the error
WT61-63.xls

20. A Quick Review CONCEPT: Consistent Reporting
Accuracy and comparison
CONCEPT: Accounting Period Cycle
Changes in financial information are reported for a specific period of time in the form of financial statements aka Fiscal Period
Timing of the Fiscal Period

21. A Quick Review (cont’d)
Work Sheet
Planning tool prepared in pencil
Trial Balance
List all accounts in the first column
Record debit and credit balances from the General Ledger in the Trial Balance columns
Prove debits = credits by totaling the two Trial Balance Columns
Rule a double line to indicate proof is verified
WT61-63.xls

22. A Quick Review (yes, there’s more)
CONCEPT: Matching Revenue with Expenses
Revenue from business activities and expenses associated with earning that revenue are recorded in the same accounting period
Adjustments to specific asset accounts are required to apply this CONCEPT and to update General Ledger balances
Transform assets to expenses
Supplies and Prepaid Insurance

23. A Quick Review (that’s taking so long)
Adjustments are made in the second set of columns of the worksheet
Actual levels of supplies and prepaid insurance are determined
The actual levels of these assets are subtracted from the General Ledger account balances to determine the amount of adjustment

24. Last Review Slide (really)
Adjustments are entered as CREDITS to the asset accounts and DEBITS to the corresponding expense accounts
Small letters in parentheses are included to help match the entries
The adjustment columns are proved by totaling each column at the same point as the Trial Balance
Proof of debits = credits is verified by ruling a double line under the totals

25. Accounting CONCEPT Accounting Period Cycle
Financial statements are prepared at the end of the accounting period cycle
Can be weekly, monthly, quarterly or annually
A company can prepare statements at any time
SEC requires publically traded corporations to publish financial statements quarterly (10-Q) and annually (10K)
What is the benefit of preparing financial statements?

26. Balance Sheet
A financial statement that reports the assets, liabilities and owner’s equity on a specific date
Snap shot in time
Balance sheet account balances are extended to the Balance Sheet Debit and Credit columns of the Work Sheet
The balance for Supplies and Prepaid Insurance are reduced by the credits in the adjustment columns

27. Income Statement
A financial statement showing the revenue and expenses for a fiscal period
Statement of flow
Up to date balances for income statement accounts are extended to the Income Statement Debit and Credit columns of the worksheet
Supplies Expense and Insurance Expense are included

28. Net Income/Loss
Total revenue – total expenses equals net income or loss for the fiscal period
If revenue>expenses, then Net Income
If revenue<expenses, then Net Loss
Net Income/Loss must be calculated before the Work Sheet can be balanced and ruled

29. Calculating Net Income/Loss
Rule a single line across the Income Stmt and Balance Sheet Columns
Total the columns and record the totals below the single line
Subtract total debits from total credits in the Income Statement columns (Revenue – Expenses)

30. Recording Net Income/Loss
If the result is greater than zero, record the net income below the total in the debit column
If the result is less than zero, record the net loss below the total in the credit
Extend the entry to the balance sheet item
Net Income is recorded as a Credit (why?)
Net Loss is recorded as a Debit (why?)
Rule a single line below the four columns
Total the columns and rule a double line to indicate proof that debits = credits

31. Practice and Review
Turn to page 160 to review the preparation of a Work Sheet using the book overlays
WT61-63.xls

32. Correcting Errors on the Work Sheet
Errors are often detected only during the preparation of the Work Sheet
How do you know there is an error?
Errors on the Work Sheet must be corrected before financial statements can be prepared
It is best to correct all mistakes in the Trial Balance before moving any further
Then, any additional errors occur on the Work Sheet alone

33. Typical Calculation Errors
The difference is 1 ($.01, $.1, etc.)
Math error – Redo calculations
The difference is divisible by 2
Look for the amount in the trial balance column, it is likely that an item was entered in the wrong column
The difference is divisible by 9
A slide occurs when numbers are moved one decimal place to the left or right ($25 becomes ($250)

34. Typical Calculation Errors
The difference is an omitted amount
Look for an amount equal to the difference
Often, that item has not been extended to the Work Sheet’s Trial Balance
How do you prevent errors?

35. Checking for Errors in the Work Sheet
Check for errors in the Trial Balance Column
Have all General Ledger account balances been entered and in the correct columns
Check for errors in the Adjustment Columns
Check for errors in the Income Statement and Balance Sheet columns

36. Correcting an Error in Posting to the Wrong Account
Draw a line through the entire incorrect entry
Recalculate the account balance and correct the work sheet
Record the posting in the correct account

37. Correcting an Incorrect Amount in the General Ledger
Draw a line through the incorrect amount
Write the correct amount just aboive the correction in the same space
Recalculate the account balance and correct the balance on the work sheet

38. Correcting an Amount Posted to the Wrong Column
Draw a line through the incorrect item in the account
Record the posting in the correct amount column
Recalculate the balance
Correct the Work Sheet

39. Checking for Errors in Journal Entries
Do debits equal credits?
You can total journal columns on each page to check for accuracy
Were transactions recorded for the correct accounts?
Have all transactions been recorded?
How do you know?
WT 6-4.xls