Today’s Target!  Fri., Oct. 9 th  Students will set up the work sheets for accounting cycle end Agenda  Start Chapter 6 Guiding Question:  “How do we close out our accounting cycle?” NOTE: Test – Chapter 5 Monday., Oct. 12 th

Today’s Target!  Tues., Oct. 13 th  Students will set up the work sheets for accounting cycle end Agenda  Test – Chapter 5  Start Chapter 6 Guiding Question:  “How do we close out our accounting cycle?”

Today’s Target!  Thurs., Oct. 15 th  Students will set up the work sheets for accounting cycle end Agenda  Start Chapter 6 Guiding Question:  “How do we close out our accounting cycle?”

Work Sheet for a Service Business General ledger accounts must be analyzed, summarized and reported in a meaningful way Consistent Reporting – when the same accounting procedures are followed in the same way in each accounting period

Creating a Work Sheet Fiscal period – length of time for which a business summarizes and reports financial information  AKA: Accounting period Accounting Period Cycle – when changes in financial information are reported for a specific period of time in the form of financial statements Each business chooses a fiscal period length that meets its needs Fiscal period can begin on any date

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 8-3 ACCOUNTING CYCLE FOR A SERVICE BUSINESS page Prepare post-closing trial balance 7.Post adjusting and closing entries 6.Journalize adjusting and closing entries 5.Prepare financial statements 4.Prepare work sheet 3.Post to the ledger 2.Journalize 1.Analyzes transactions

Creating a Work Sheet Work sheet – an accounting form used to summarize the general ledger information needed to prepare financial statements Accountants use a work sheet for four reasons:  Summarize general ledger account 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 or net loss for a fiscal period

Creating a Work Sheet Journals and ledgers are permanent records of a business and are prepared by ink or printed by a computer. However, a work sheet is a planning tool and is not considered a permanent accounting record. (Can be prepared in pencil!)

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 6-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 10 LESSON 6-1 PREPARING THE HEADING OF A WORK SHEET page 153 Name of Company 1 Name of Report 2 Date of Report 3

Preparing a Trial Balance on a Work Sheet Trial balance – A proof of equality of debits and credits in a general ledger Information for the trial balance is taken from the general ledger General ledger account titles are listed on a trial balance in the same order as the chart of accounts All the account titles are listed, even if some accounts do not have balances Pg.154

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 12 LESSON Write the general ledger account titles. 2.Write the general ledger debit account balances. Write the general ledger credit account balances. 4.Add both the Trial Balance Debit and Credit columns. 3.Rule a single line across the two Trial Balance columns. 5.Write each column’s total below the single line. 6.Rule double lines across both Trial Balance columns. PREPARING A TRIAL BALANCE ON A WORK SHEET page

Assignment 6-1 Work Together & On Your Own

Planning Adjustments on a Work Sheet Sometimes a business will pay cash for an expense in one fiscal period, but the expense is not used until a later period. The expense should be reported in the same fiscal period that it is used to produce revenue Matching Expenses with Revenue – when revenue from business activities and expenses associated with earning that revenue are recorded in the same accounting period

Planning Adjustments on a Work Sheet Example:  TechKnow buys supplies in quantity in August, but some of the supplies are not used until September.  Only the value of the supplies used in August should be reported as expenses in August.

Planning Adjustments on a Work Sheet Some general ledger account must be brought up to date at the end of a fiscal period. Supplies:  TechKnow debits an asset account, Supplies, each time supplies are bought.  Supplies on hand are items of value owned by a business until used.  The value of supplies that are used becomes an expense to the business.

Planning Adjustments on a Work Sheet Supplies continued:  Recording an expense each time an individual supply is used would be impractical.  Therefore, at the end of the month, the balance of Supplies is the value of all supplies bought rather than the value of only the supplies that have not yet been used.  The amount of supplies that have been used must be deducted from Supplies and recorded as Supplies Expense.

Planning Adjustments on a Work Sheet Prepaid Insurance:  The amount of insurance that has been used during the fiscal period is also an expense of the business.  When the insurance premium for a year of insurance coverage is paid, the entire amount is debited to Prepaid Insurance.  Recording each day’s amount of insurance used is impractical.  Therefore, at the end of a fiscal period, the amount of insurance coverage used must be deducted from Prepaid Insurance and recorded as Insurance Expense.

Planning Adjustments on a Work Sheet Adjustments – changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period Adjustments must be made to both the asset and expense accounts for supplies and insurance

Planning Adjustments on a Work Sheet A work sheet is used to plan adjustments Changes are not made in general ledger accounts until adjustments are journalized and posted The accuracy of the planning for adjustments is checked on a work sheet before adjustments are actually journalized (Procedures for journalizing adjustments are described in Chapter 8)

Supplies Adjustment on a Work Sheet To analyze the adjustment, ask yourself the following four questions: 1. What is the balance of Supplies? 2. What should the balance be for this account? 3. What must be done to correct the account balance? 4. What adjustment is made? (Pg. 158) Same for Prepaid Insurance pg. 159

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 22 LESSON 6-2 SUPPLIES ADJUSTMENT ON A WORK SHEET 1 2 page Write the debit amount. 2.Write the credit amount. 3.Label the two parts of this adjustment.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 23 LESSON 6-2 PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET page Write the debit amount. 2.Write the credit amount. 3.Label the two parts of this adjustment.

PREPARING A WORK SHEET 1. Write the heading. 2. Record the trial balance. 3. Record the supplies adjustment. 4. Record the prepaid insurance adjustment. 5. Prove the Adjustments columns. 6. Extend all balance sheet account balances. 7. Extend all income statement account balances. 8. Calculate and record the net income (or net loss). 9. Total and rule the Income Statement and Balance Sheet columns.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 25 LESSON 6-2 (b) (a) Net Income

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Extending Financial Statement Information on a Work Sheet At the end of each fiscal period, we prepare two financial statements from information on a work sheet Balance Sheet – reports assets, liabilities and owner’s equity on a specific date Income Statement – reports the revenue and expenses for a fiscal period

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 27 LESSON 6-3 EXTENDING BALANCE SHEET ACCOUNT BALANCES ON A WORK SHEET page Debit balances without adjustments 2.Debit balances with adjustments 3.Credit balances without adjustments 3 2 1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 28 LESSON 6-3 EXTENDING INCOME STATEMENT ACCOUNT BALANCES ON A WORK SHEET page Sales balance 2.Expense balances without adjustments 3.Expense balances with adjustments 1 3 2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Totaling and Ruling a Work Sheet Net income – difference between total revenue and expenses when total revenue is greater Net loss – difference between total revenue and expenses when total expenses are greater

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 30 LESSON Single rule 2.Totals 3.Net income RECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEET page Extend net income6.Totals Single rule7.Double rule

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 31 LESSON 6-3 CALCULATING AND RECORDING A NET LOSS ON A WORK SHEET page Totals 3.Net loss 4.Extend net loss 1.Single rule

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Finding and Correcting Errors on the Work Sheet If the columns on the work sheet do NOT balance, you must look for errors before continuing Errors can result from: Incorrectly transferring information from the ledger to the trial balance Recording adjustments incorrectly Calculation errors Errors journalizing or posting Check for errors on the work sheet first, then check the ledger, then check the journal (see pg. 168) As each entry is verified, place a checkmark to show that the item has been checked for accuracy

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Typical Calculation Errors see page If the difference is 1 such as.01,.10, 1.00 or the error is most likely addition. Add again. 2.If the difference can be evenly divided by 2 look for half the difference and check to make sure entries for that amount have been recorded in the correct debit or credit columns 3.If the difference can be divided evenly by 9 check for transposed numbers or decimal “slide” errors 4.If the difference is an omitted amount, look for an amount equal to the difference

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 34 LESSON 6-4 CORRECTING AN ERROR IN POSTING TO THE WRONG ACCOUNT page 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.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 35 LESSON 6-4 CORRECTING AN INCORRECT AMOUNT page 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.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 36 LESSON 6-4 CORRECTING AN AMOUNT POSTED TO THE WRONG COLUMN 46 page 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

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Assignment 6-2 Work Together & On Your Own 6-3 Work Together & On Your Own

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Today’s Target!  Tues., Oct. 20 th  Students will set up the work sheets for accounting cycle end Agenda  Complete Chapter 6 Application Problems  6-1 – 6-3 Work Together/On Your Own (Optional)  6-1 Application  6-2 Application  6-3 Application  6-4 Mastery B (Optional)  6-4 Mastery Problem  Chapter 6 Study Guide  Chapter 6 Test A Guiding Question:  “How do we close out our accounting cycle?” NOTE: Test – Chapter 6, Monday., Oct. 26th