The Six-Column Worksheet Chapter 8 The Six-Column Worksheet

Objectives Explain the purpose of a work sheet Describe the parts of a six-column work sheet Prepare a six-column work sheet Calculate net income and net loss

What do you think Why would it be difficult to use ledger accounts to prepare financial reports? The work sheet organizes general ledger account information for the financial statements

8.1 Objectives Understand the purpose of a work sheet Identify the sections of a work sheet

the work sheet A working paper used to collect information from the ledger accounts in one place 6th step in the accounting cycle Used to gather information needed to prepare the financial statements and Complete other end-of-period activities

The work sheet There are 5 work sheet sections Heading Account name section Trial Balance section Income Statement section Balance Sheet section

Work sheet heading Contains three kinds of information WHO? WHAT? The name of the business WHAT? The name of the accounting form WHEN? The period covered by the work sheet

Work sheet account name Account names and numbers come from the General Ledger Accounts listed on the work sheet in the same order as the GL Assets Liabilities Owner’s Equity Revenue Expenses ALL GL accounts are listed in the work sheet, even those with a ZERO balance

Work Sheet Account Name

Work sheet trial balance The end-of-period balance in the GL for each account is entered into the appropriate amount column on the Trial Balance If an account has a ZERO balance, a line is drawn in the normal balance column.

Work sheet trial balance There are two steps to do after completing the Trial Balance Rule the Trial Balance section Ruling – drawing a single line, to indicate the columns are ready to be totaled Total the Trial Balance section Totaling – draw a double line, to indicate that total debits = total credits, and they’re totaled

Rule & Total Trial Balance

CLose What does this mean? The columns on the work sheet must be ruled properly

ClassWork 8.1: text p. 200, wbk p.148 8.2: text p. 200, wbk p.148

What do you think If a business has a net loss, what does this tell you about the accounting equation? It’s not in balance After completing the worksheet, you will know the net loss for the accounting period.

8.2 Objectives How amounts are entered into the work sheet sections How to calculate net income How to enter totals A summary of steps used to prepare a work sheet

Sections of the work sheet Two financial statements prepared at the end of the accounting period Balance Sheet Income Statement Both organized on the work sheet

Balance sheet section Contains the following: Asset Liability Owner’s Equity After proving the Trial Balance section, extend, or transfer, the appropriate amounts to the BS section Extend debits to the Balance Sheet DR column Extend credits to the Balance Sheet CR column

Income statement section Amount balances extended: Revenue Expense Revenue accounts have a normal credit balance Expense accounts have a normal debit balance Extend revenue accounts to the credit column of the IS Extend expense accounts to the debit column of the IS

Totaling Balance sheet & income statement sections A single rule is drawn under the DR and CR columns indicating their ready to be totaled These amounts will not equal each other like the Trial Balance They will equal each other after Net Income or Net Loss has been calculated

Totaling Balance sheet & income statement sections

Matching principle: Net Income or Net Loss Requires matching expenses with revenue earned in accounting period Measures profit by showing how much money was spent Owners and managers use this to Analyze results Make decisions

Net income or net loss To find Net Income or Net Loss – subtract the total expenses from the total revenue Net Income - you have more money coming in than you have spent. Revenue > Expenses Amount written as a DR on the Income Statement Net Loss – you have spent more than you earned Revenue < Expenses Amount written as a CR on the Income Statement Once you subtract, you will determine the amount of the Net Income or Net Loss

Net Income 3 Steps Skip a line after the last expense and write the words Net Income (or Net Loss) in the Account Name Column On the same line, enter the net income amount in the Income Statement DR column On the same line, enter the net income amount in the Balance Sheet CR column

Net income

Net income Increases capital because revenue is greater than expenses Revenue and expense accounts are temporary accounts closed at the end of each period Net Income gets transferred to Owner’s Equity at the end of the period Net Income written as a CR to the Balance Sheet For accuracy, subtract BS debit and credit columns to equal the Net Income If it doesn’t match, there’s an error Go back to make sure Trial Balance #s are correctly extended and written

Steps to complete work sheet On the line under the net income amount, draw a single rule across the four columns Bring down the Income Statement DR and CR column totals (after adding net income or net loss) Bring down the Balance Sheet DR and CR column totals (after adding net income or net loss) Draw a double rule under the four Balance Sheet and Income Statement totals TOTAL DEBITS = TOTAL CREDITS

Completing the work sheet Net Income

Completing the work sheet Net Loss

Recap of 8 steps in preparing a six-column work sheet Enter the heading Enter the account numbers, names and balances Show that Trial Balance DR = CR Transfer the Trial Balance values to the IS and BS sections Total the IS and BS columns Determine the net income or net loss Enter the net income or net loss in the IS and BS Total and Double Rule the four columns

Close When does a business have a net income? Income Statement Expenses (–) Revenue (+)

Answer & Submit Is Owner’s Capital extended to the BS or IS credit column? What does a single rule indicate? What does it mean to extend an amount? What does the matching principle require? Does net income increase or decrease owner’s equity?

classwork 8.3: text p. 207, wbk p. 148 8.4: text p. 212, wbk p. 149 *Appendix G – Ch 8, Prob 8A: text p. A-56, wbk p. 941* *Graded Problem