CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1 Creating a Worksheet

CENTURY 21 ACCOUNTING © Thomson/South-Western WHY DO WE NEED A WORK SHEET? To summarize general ledger account balances to prove that debits equal credits To plan needed changes to general ledger accounts to bring account balances up to date To separate general ledger account balances according to the financial statements to be prepared (accounts to be reported on the balance sheet vs. accounts to be reported on the income statement) To calculate the amount of net income or net loss for a fiscal period **unlike the general journal and general ledger, which are considered permanent accounting records (prepared on the computer or in ink), the work sheet is a planning tool and not considered a permanent record—it is prepared in pencil 2 LESSON 6-1

CENTURY 21 ACCOUNTING © Thomson/South-Western A FEW TIDBITS, DEFINITIONS AND CONCEPTS TO KNOW… Concept of Consistent Reporting: the same accounting procedures are followed in the same way in each accounting period (see example, p. 152) Concept of Accounting Period Cycle: changes in financial information are reported for a specific period of time in the form of financial statements (balance sheet and income statement) Fiscal period (aka accounting period) – business selects a period of time to summarize and report financial information that best suits its needs… a fiscal period is usually a year to match federal and state tax reports; is usually started on the first day of the month; and starts/stops during a period of low business activity 3 LESSON 6-1

CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 6-1 PREPARING THE HEADING OF A WORK SHEET page 153 Name of Company 1 Name of Report 2 Date of Report 3

CENTURY 21 ACCOUNTING © Thomson/South-Western WORKSHEET 5 LESSON 6-1

CENTURY 21 ACCOUNTING © Thomson/South-Western 6 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 (*a trial balance proves the equality of debits and credits in a general ledger) page

CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON 6-1 TERMS REVIEW fiscal period work sheet trial balance page 155

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-2 Planning Adjusting Entries on a Work Sheet

CENTURY 21 ACCOUNTING © Thomson/South-Western WHY ARE ADJUSTING ENTRIES NECESSARY? Concept of Matching Expenses with Revenue – revenue from business activities and expenses associated with earning that revenue are recorded in the same accounting period The value of the asset accounts Supplies and Prepaid insurance must reflect of the value of the asset on hand at the end of each month (some will get used up during the month) The amount of the Supplies or Insurance used must be deducted from the asset account Changes recorded on a work sheet to update general ledger accounts are called adjustments 9 LESSON 6-1

CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 6-1 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 © Thomson/South-Western 11 LESSON 6-1 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.

CENTURY 21 ACCOUNTING © Thomson/South-Western 12 LESSON 6-1 PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET page Rule double lines. 2.Add both the Adjustments Debit and Credit columns. Write each column’s total. 1.Rule a single line

CENTURY 21 ACCOUNTING © Thomson/South-Western 13 LESSON 6-1 PREPARING A WORK SHEET 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.

CENTURY 21 ACCOUNTING © Thomson/South-Western 14 LESSON 6-1

CENTURY 21 ACCOUNTING © Thomson/South-Western 15 LESSON 6-1 1

CENTURY 21 ACCOUNTING © Thomson/South-Western 16 LESSON 6-1 (b) (a) Net Income

CENTURY 21 ACCOUNTING © Thomson/South-Western 17 LESSON 6-1 TERM REVIEW adjustments page 161

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-3 Extending Financial Statement Information on a Work Sheet Assets, Liabilities and Owner’s Equity Balance Sheet Revenue and Expenses Income Statement

CENTURY 21 ACCOUNTING © Thomson/South-Western 19 LESSON 6-1 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 © Thomson/South-Western 20 LESSON 6-1 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 © Thomson/South-Western 21 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 © Thomson/South-Western 22 LESSON 6-1 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 © Thomson/South-Western 23 LESSON 6-1 TERMS REVIEW balance sheet income statement net income net loss page 166

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-4 Finding and Correcting Errors on the Work Sheet

CENTURY 21 ACCOUNTING © Thomson/South-Western CHECKING FOR TYPICAL CALCULATION ERRORS The difference is 1 ($.01, $.10, $1.00, $10.00) – usually an addition error The difference can be divided evenly by 2 – look for an amount that is half of the difference and check that it is recorded in the correct column (debit or credit) The difference can be divided evenly by 9 – look for transposed numbers (54 instead of 45), also look for a “slide” ($12.00 is recorded as $120.00) The difference is an omitted amount – look for an amount equal to the difference 25 LESSON 6-1

CENTURY 21 ACCOUNTING © Thomson/South-Western CHECKING FOR ERRORS IN THE WORK SHEET Trial Balance Column Have all ledger account balances been copied to trial balance columns? Have all ledger account balances been put in the correct trial balance column? Adjustment Columns Debit adjustments equal credit adjustments? Is the amount of each adjustment correct? Income Statement or Balance Sheet Columns Has each amount been copied correctly when extended Has each account been extended to the correct column (Balance sheet or Income Statement) Net income or net loss calculated correctly? Is net income or net loss recorded in the correct column 26 LESSON 6-1

CENTURY 21 ACCOUNTING © Thomson/South-Western 27 LESSON 6-1 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 © Thomson/South-Western 28 LESSON 6-1 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 © Thomson/South-Western 29 LESSON 6-1 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