Sec 8.2 Adjusting Entries and the Worksheet

The worksheet  Accountants may need an overview of the year- end account balances and a tool to plan the needed adjustments. This is especially true if accounting software is not being used.  A worksheet is an informal business paper used to organize and plan the information for the financial statements.

The worksheet (cont’d)  It is informal because not all of the data it contains will be directly posted to accounts, that function still belongs to the journal  It is done in pencil or on a spreadsheet to accommodate the last-minute changes an accountant might make

Worksheet organization; 5 points 1. The worksheet starts with three columns to hold account titles and trial balance amounts 2. The next two columns are for adjustments to account balances 3. Income statement data in the trial balance columns are copied to the income statement columns. If an income statement item is affected by an entry in the adjustments column, then a new amount is calculated before it is copied

The worksheet (cont’d) 4. Balance sheet data in the trial balance columns are copied to the balance sheet columns. If a balance sheet item is affected by an entry in the adjustments column, then a new amount is calculated before it is copied. 5. Columns are totaled, net income is revealed, and the worksheet is balanced and ruled to prove the equality of the ledger

Examples – pp  -Supplies, prepaid insurance, and late-arriving purchase invoices and unearned revenue  Notice that the Supplies Expense did not previously appear in the Accounts column on the worksheet because the account balance on Dec. 31 was zero. Therefore, you need to write its title on the next available line of the worksheet, as shown in Fig. 8.4 on the previous page. Also notice that the adjusting entry is referenced in Fig. 8.4 with a circled numeral “1”.

Extending the Worksheet  Each line of the worksheet that holds an account balance must be extended to one of the last four columns.  Step 1 – Evaluate each item in the first four columns (add or subtract). The process will result in one number that will have either a debit or credit value.  Step 2 – Transfer the value found in Step 1 to one of the last four columns, Income Statement or Balance Sheet, debit or credit

Balancing the Worksheet (p. 286)  Step 1 – Total each of the last four columns  Step 2 – Determine the difference between the two income statement columns and the two balance sheet columns  Step 3 – Ensure that the two differences are the same. If they are not the same, you must find the error(s)  Step 4 – Write in Net Income in the Accounts column. Record the totals of the last four columns with ruled lines

Preparing the Financial Statements  You will not have the correct totals for Revenue, Expenses, and Net Income (or Loss)  Once the worksheet is completed, the adjusting entries must be recorded in the books of account. Only then will the ledger account balances match the numbers reported on the financial statements  Accountants journalize and post all adjusting entries that appear in the adjustments section of the worksheet