2 These steps are performed frequently during a cycle The Accounting CycleThese steps are performed frequently during a cycleCollect and verify source documentsAnalyze each transactionJournalize each transactionPost to the ledgerTrial balanceThese steps are only performed at the end of an Accounting Cycle 6. Work Sheet 7. Prepare financial statements 8. Journalize and post closing entries 9. Prepare a post-closing trial balancePg 196
3 What is the purpose of a Work Sheet? A Work Sheet is a working paper used to collect information from the ledger accounts in one placeSections of a work sheetThe headingThe Account Name sectionThe Trial Balance sectionThe Income Statement sectionThe Balance Sheet sectionPg 197
4 Report Headings Headings answer the questions: Who, What and When Ex: Roadrunner Delivery Service ---WhoWork Sheet ---WhatFor the Month Ended October 31, WhenPg 197
5 The Account Name Section and Trial Balance Section Pg 198This information comes from the ledger and is filled out much like a trial balance report is filled out.
6 Ruling and Totaling a Work Sheet Ruling means to draw a line. In accounting a single rule means that the entries above the rule are ready to be totaled. After the totals have been proven to equal, a double rule is drawn under them.Pg 199
7 The Balance Sheet and Income Statement Sections These are both financial statements prepared at the end of the accounting period. The work sheet organizes the information for these reportsThe Balance Sheet Section – contains Assets, Liabilities, and Owner’s Equity accountsThe Income Statement Section – contains the Revenue and Expense accountsSingle rule and then total all columns.Pg 201
8 Balance Sheet and Income Statement Accounts Pg 202
10 Showing Net Income or Net Loss Matching Principal – according to GAAP expenses incurred in an accounting period must match with the revenue earned in the same periodNet Income – the amount of revenue that remains after expenses for the period have been subtractedNet Loss – happens when total expenses exceed total revenue
11 To Record Net Income or Loss Pg 204Determine if Revenue or Expenses is the larger number, then subtract the two numbers.Skip a line under the account names and write Net Income if the Revenue column is higher or Net Loss if the Expense column is higher.Write the difference between the two columns on the same row as the words New Income or Net Loss under the smaller of the two totalsOn the same line, write that same number under the total in the Balance Sheet section that is opposite of the Income Statement column.Ex If you wrote it in the Debit column on the Income Statement section then write it in the Credit column on the Balance Sheet section
13 It Stands to ReasonIf Revenue (a credit) is larger than expense the business made a profit, that amount is then recorded under the debit column to bring expenses equal to revenue.If the business made a profit, that amount would be added to the Capital account (a credit) which is the offset of the amount added to the expense account as a debit.
14 Completing the Work Sheet Draw a single rule under the entire Net Income or Net Loss area.Add all columns downCheck that the debit and credit columns of the Income Statement balance and that the debit and credit columns of the Balance Sheet columns balanceOnce everything is in balance, double rule the entire totals line.