GAAP – Accounting Period Cycle – When changes in financial information are reported for a specific period of time in the form of financial statements Fiscal Period – the length of time for which a business summarizes and reports financial information (always report at the end of the fiscal period) *Can be any length of time (usually a year) *Encore Music’s is one month Most businesses use a one year period…that ends during a period of low business activity - January 31 st ….Why?

GAAP – Consistent Reporting – When the same accounting procedures are followed in the same way in each accounting period Example: In one year, a delivery business reports the number of deliveries made… 2,650 deliveries The next year, the same company reports the amount of revenue received for the deliveries made… $6, in revenue Can’t compare them…2 different things

Work Sheet – an Internal Document …a planning tool, not a permanent record Why prepare one? 1)To summarize general ledger account balances to prove that debits equal credits (“try” to make them balance = be equal) 2) To plan needed changes to general ledger accounts to bring account balances up to date (make adjustments) 3) To separate general ledger account balances according to the financial statements to be prepared 4) To calculate the amount of net income or net loss for a fiscal period

PREPARING THE HEADING OF A WORK SHEET Date of Report shows growth over time, not just information about one day 1. Name of Company 2.Name of Report Lesson 7-1, page 150

PREPARING A TRIAL BALANCE ON A WORK SHEET 1 1. Account Titles 4 4.Add Totals 2 2.Account Balances 5 5. Write Totals Lesson 7-1, page Double Rule Trial balance proves that ledger debits equal ledger credits List accounts in same order as Chart of Accounts All accounts listed (even if there is no balance) 3 3.Single Rule

Work Together 7-1 (p152 – wb125) & On Your Own 7-1 (p153 – wb126) Work Together 7-1 (p152 – wb125) & On Your Own 7-1 (p153 – wb126)

Supplies Account Balance, August Supplies on hand (how much I really have) August Which one is my current “Balance”? Which one goes on my “Balance Sheet”? So we “Adjust” for the difference ( =2564)

Adjustments GAAP – Matching Expenses with Revenue – applicable when revenue from business activities and expenses associated with earning that revenue are recorded in the same accounting period After we use supplies (pencils, ink, etc.), we no longer have them No longer assets…we need to “expense” them Supplies Account Balance, Aug. 31 4, Supplies On Hand, Aug 31 Supplies Used During August, Aug = Estimate how much you actually have (in the closets, drawers, etc.) Current Balance

SUPPLIES ADJUSTMENT ON A WORK SHEET SUPPLIES become a SUPPLIES EXPENSE 1 1. Write the debit amount. 2 2.Write the credit amount. 3.Label the two parts of this adjustment with a small letter a in parentheses, (a). 3 Lesson 7-2, page =

Prepaid Insurance Account Balance, August Value of Prepaid Insurance (how much I really have) August Which one is my current “Balance”? Which one goes on my “Balance Sheet”? So we “Adjust” for the difference ( =100) Jan 1:Paid 1900 Used 100 Balance 1800 Used 100 Balance 1700 Used 100 Balance 1600 Used 100 Balance 1500 Used 100 Balance 1400 Used 100 Balance 1300 Used 100 Balance 1200 Used 100 Balance 1100

PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET PREPAID INSURANCE becomes INSURANCE EXPENSE 1 1. Write the debit amount. 2 2.Write the credit amount. 3.Label the two parts of this adjustment with a small letter b in parentheses, (b). 3 Lesson 7-2, page =

PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET 1 1. Rule a single line. 2 2.Add both the Adjustments Debit and Credit columns. 3.Rule double lines. 3 Lesson 7-2, page 157

Work Together 7-2 (p158 – wb125) & On Your Own 7-2 (p158 – wb126) Work Together 7-2 (p158 – wb125) & On Your Own 7-2 (p158 – wb126)

WT a) 456 – 325 = 131 b) 750 – 500 = 250

EXTENDING BALANCE SHEET ACCOUNT BALANCES ON A WORK SHEET Assets, Liabilities, Owner’s Equity 2.Debit Balances with Adjustments Remember…this is what you currently have This is the current number for your current financial statements that you are about to prepare 2 3.Credit Balances without Adjustments 3 Lesson 7-3, page Debit Balances without Adjustments 1

EXTENDING INCOME STATEMENT ACCOUNT BALANCES ON A WORK SHEET Expenses & Revenues 1. Sales Balances 1 3.Expense Balances with Adjustments 3 2.Expense Balances without Adjustments 2 Lesson 7-3, page 160

RECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEET Lesson 7-3, page 161 Sales Expenses Did you earn an income or incur a loss? Income: Label it & Calculate it ( ) - _______

RECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEET 1.Single Rule Double Rule 2 2.Total 4 4.Extend Net Income 5 5.Single Rule 6 6.Totals Lesson 7-3, page Net Income Income Statement Credit – Income Statement Debit = Net Income

CALCULATING AND RECORDING A NET LOSS ON A WORK SHEET 4.Extend Net Loss 4 3.Net Loss 3 1. Single Rule 1 2.Totals 2 Lesson 7-3, page 162 Overlay – after page 160

Work Together 7-3 (p163 – wb125) & On Your Own 7-3 (p163 – wb126) Work Together 7-3 (p163 – wb125) & On Your Own 7-3 (p163 – wb126)

WT - = 4320 – 2790 = 1530

Work Sheet – an Internal Document …a planning tool, not a permanent record Why prepare one? 1)To summarize general ledger account balances to prove that debits equal credits (“try” to make them balance = be equal) 2) To plan needed changes to general ledger accounts to bring account balances up to date (make adjustments) 3) To separate general ledger account balances according to the financial statements to be prepared 4) To calculate the amount of net income or net loss for a fiscal period

CHECKING FOR TYPICAL CALCULATION ERRORS n When two column totals are not in balance, subtract to find the difference. n Check the difference between the two amounts against the following guides: 1.The difference is 1, such as $.01, $.10, $1.00, or $ The difference can be divided evenly by 2. 3.The difference can be divided evenly by 9. 4.The difference is an omitted amount. Lesson 7-4, page 164 Addition Ex. A $48 difference could be a $24 posting error Transposed (54 vs. 45) or Slid ( vs ) Amount equal to the difference Test Questions

CHECKING FOR ERRORS IN THE WORK SHEET n Check for Errors in the Trial Balance Column –Have all general ledger account balances been copied in the Trial Balance column correctly? –Have all general ledger account balances been recorded in the correct Trial Balance column? n Check for Errors in the Adjustments Columns –Do the debits equal the credits for each adjustment? –Is the amount for each adjustment correct? n Check for Errors in Income Statement and Balance Sheet Columns –Has each amount been copied correctly? –Has each amount been extended to the correct column? –Has the net income/loss been calculated correctly? –Has the net income/loss been recorded in the correct column? Lesson 7-4, page 165

CORRECTING AN ERROR IN POSTING TO THE WRONG ACCOUNT Lesson 7-4, page Correct Entry 2 1. Incorrect Entry 1 Can’t find an error on the work sheet? Re-post from the journal – yikes!

CORRECTING AN INCORRECT AMOUNT AND AN AMOUNT POSTED TO THE WRONG COLUMN Lesson 7-4, page 166

Work Together 7- 4 (p167 – wb127) & On Your Own 7- 4 (p167 – wb135) Work Together 7- 4 (p167 – wb127) & On Your Own 7- 4 (p167 – wb135)

WT

Incorrect WT