The Accounting Cycle As we have learned, accounting is a systematic process of recording the financial transactions of a business and arranging the subsequent data in a usable format. The above mentioned process is known as the Accounting Cycle. LESSON 6-1

THE ACCOUNTING CYCLE 1 2 8 3 7 4 6 5 1. Analyzes transactions 2. Journalize 2 3. Post 8 4. Prepare work sheet 5. Prepare financial statements 3 6. Journalize adjusting and closing entries 7 4 7. Post adjusting and closing entries 8. Prepare post-closing trial balance 6 5 LESSON 8-3

The Accounting Cycle So far we have learned how to analyze business transactions, journalize the transactions in the general journal, and post the journal entries to the general ledger. Now we will begin to explore the next step of the accounting cycle, which is preparing an Accounting Work Sheet. LESSON 6-1

LESSON 6-2

Accounting Work Sheets An Accounting Work Sheet is a columnar accounting form used to summarize the General Ledger information needed to prepare Financial Statements. The Work Sheet is used for four reasons: Summarize general ledger account balances to prove debits equal credits Plan needed changes to the general ledger accounts to bring account balances up to date Separate general ledger account balances according to the financial statements to be prepared Calculate the amount of net income or net loss LESSON 6-1

LESSON 6-2

PREPARING THE HEADING OF A WORK SHEET page 153 Name of Company 1 Name of Report 2 Date of Report 3 LESSON 6-1

PREPARING A TRIAL BALANCE ON A WORK SHEET page 154 2 1. Write the general ledger account titles. 2. Write the general ledger debit account balances. Write the general ledger credit account balances. 1 4 3. Rule a single line across the two Trial Balance columns. 4. Add both the Trial Balance Debit and Credit columns. 5. Write each column’s total below the single line. 3 6. Rule double lines across both Trial Balance columns. 5 6 LESSON 6-1

ACCOUNTING WORK SHEETS LESSON 6-2 4/13/2017 ACCOUNTING WORK SHEETS Planning Adjusting Entries GREEN

ADJUSTING ENTRIES We Journalize transactions in the General Journal on a daily basis. We Post journal entries to the General Ledger at least monthly or when called for in the Accounting Cycle. We create Work Sheets to summarize and report financial information periodically during the Fiscal Period. LESSON 6-1

ADJUSTING ENTRIES So why do we need adjusting entries? In order to provide accurate financial information, some General Ledger Accounts must be brought up to date. Why must these accounts be brought up to date? The accounting concept of Matching Revenues with Expenses. Sometimes a business will pay cash for an expense in one period, but the expense is not used until a latter period. Example: Supplies and Insurance LESSON 6-1

ADJUSTING ENTRIES However, the accounting concept of Matching Revenues with Expenses - states that we must record expenses in the period that they are used to produce revenue. LESSON 6-1

SUPPLIES ADJUSTMENT ON A WORK SHEET page 158 2 3 1 1. Write the debit amount. 2. Write the credit amount. 3. Label the two parts of this adjustment. LESSON 6-2

PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET page 159 2 3 1 1. Write the debit amount. 2. Write the credit amount. 3. Label the two parts of this adjustment. LESSON 6-2

PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET page 160 1 2 3 1. Rule a single line. 2. Add both the Adjustments Debit and Credit columns. Write each column’s total. 3. Rule double lines. LESSON 6-2

TIME CHECK LESSON 6-1

PREPARING A WORK SHEET Please turn to page 160 in your text book. LESSON 6-1

PREPARING A WORK SHEET 1. Write the heading. page 160 C 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. LESSON 6-2

LESSON 6-2

1 LESSON 6-2

1 2 496400 10000 15000 11000 102500 120000 20000 5000 500000 62500 356500 21300 2800 30000 496400 10000 15000 31000 110000 20000 5000 500000 62500 6 (a) 71500 3 (b) 10000 4 11000 21300 2800 30000 356500 10000 71500 7 5 881500 881500 81500 81500 146600 356500 734900 525000 Net Income 8 209900 209900 9 356500 356500 734900 734900 LESSON 6-2

LESSON 6-3 Extending Financial Statement Information on a Work Sheet 4/13/2017 LESSON 6-3 Extending Financial Statement Information on a Work Sheet GREEN

EXTENDING BALANCE SHEET ACCOUNT BALANCES ON A WORK SHEET LESSON 6-3 4/13/2017 EXTENDING BALANCE SHEET ACCOUNT BALANCES ON A WORK SHEET page 162 2 1 3 1. Debit balances without adjustments 2. Debit balances with adjustments 3. Credit balances without adjustments LESSON 6-3 GREEN

EXTENDING INCOME STATEMENT ACCOUNT BALANCES ON A WORK SHEET page 163 1 2 3 1. Sales balance 2. Expense balances without adjustments 3. Expense balances with adjustments LESSON 6-3

RECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEET page 164 4 1 2 3 5 6 7 1. Single rule 2. Totals 4. Extend net income 6. Totals 3. Net income 5. Single rule 7. Double rule LESSON 6-3

CALCULATING AND RECORDING A NET LOSS ON A WORK SHEET page 165 1 2 3 4 1. Single rule 2. Totals 3. Net loss 4. Extend net loss LESSON 6-3

TERMS REVIEW balance sheet income statement net income net loss page 166 balance sheet income statement net income net loss LESSON 6-3

LESSON 6-4 Finding and Correcting Errors on the Work Sheet 4/13/2017 LESSON 6-4 Finding and Correcting Errors on the Work Sheet GREEN

CORRECTING ACCOUNTING ERRORS ON THE WORK SHEET Some errors in accounting records are not discovered until a work sheet is prepared. Example errors in posting to the General Ledger. The error may not be found until the Trial Balance does not balance. Information can also be incorrectly transferred from the General Ledger to the work sheet’s Trial Balance. Other errors may include incorrectly recording Adjusting Entries. The Work Sheet is your first check for errors! LESSON 6-1

CHECKING FOR TYPICAL CALCULATION ERRORS When two column totals are not in balance, subtract the smaller total from the lager total to find the difference. Check the difference between the two amounts against the following guidelines: The difference is 1, such as $.01, $.10, $1.00, or $10.00 – the error is most likely addition. The difference can be divided evenly by 2 – look for the result. The difference can be divided evenly by 9 – look for a transposed number. The difference is an omitted amount – look for an amount equal to the difference. LESSON 6-1

CORRECTING AN ERROR IN POSTING TO THE WRONG ACCOUNT page 168 2 Correct entry 1 Incorrect entry 1. Draw a line through the entire incorrect entry. Recalculate the account balance and correct the work sheet. 2. Record the posting in the correct account. Recalculate the account balance, and correct the work sheet. LESSON 6-4

CORRECTING AN INCORRECT AMOUNT page 169 2 1 3 1. 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. LESSON 6-4

CORRECTING AN AMOUNT POSTED TO THE WRONG COLUMN page 169 2 1 3 5 4 6 4. Draw a line through the incorrect item in the account. 5. Record the posting in the correct amount column. 6. Recalculate the account balance, and correct the work sheet. LESSON 6-4