CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 6-1, 6-2, & 6-3 How do you create a Worksheet & Plan Adjusting Entries on a Work Sheet?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Fiscal Period Consistent Reporting The same accounting procedures must be followed in the same way each accounting period Fiscal period Length of time for which a business summarizes and reports financial information (also known as accounting period) Businesses can choose any length of time it wishes – most choose a year (Zytech chose 1 month because it’s a new business) Can begin on any date – most choose first day of month Businesses usually choose a one-year fiscal period to end during a time when they are least busy Financial information can be analyzed, summarized, and reported at any time, but it must be done at the end of a fiscal period 2 LESSON 6-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 3 LESSON 6-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Worksheet Worksheet – a columnar accounting form used to summarize the general ledger information needed to prepare financial statements Accountants use worksheets for four reasons: 1.To prove that debits = credits in the general ledger (trial balance) 2.To plan needed changes to GL accounts to bring balances up to date 3.To separate GL account balances according to the financial statements to be prepared 4.To calculate the amount of net income or net loss for a fiscal period Planning tool not permanent record – pencil is used 4 LESSON 6-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 5 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 © 2009 South-Western, Cengage Learning 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 page

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Planning Adjustments on a Work Sheet Accounting Concept: matching revenue with expenses Expenses associated with revenue earned must be recorded in the same accounting period EXAMPLE: supplies and prepaid insurance…must be brought up to date at end of fiscal period (unrealistic to record what is used on daily basis, but they were used to earn revenue during fiscal period) Adjustments Changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period Adjustments are not recorded in journal and posted until the accuracy is proved on the work sheet 7 LESSON 6-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 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 9 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.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 10 LESSON 6-2 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 © 2009 South-Western, Cengage Learning Financial Statements Balance Sheet Financial statement that reports assets, liabilities, and owner’s equity ON A SPECIFIC DATE Accounting equation (A = L + OE) These account balances are extended to balance sheet section of work sheet Income statement Financial statement showing the revenue and expenses for a fiscal period Revenue and expense account balances are extended to this part of the work sheet Net Income Difference between total revenue and total expenses when total revenue is greater 11 LESSON 6-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 12 LESSON 6-2 (b) (a) Net Income

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 13 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 Net loss – difference between total revenue and total expenses when total expenses are greater

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 14 LESSON 6-2 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 © 2009 South-Western, Cengage Learning 15 LESSON 6-2 TERM REVIEW fiscal period work sheet trial balance adjustments page 161

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 6-4 How do you find and correct errors on the Work Sheet

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Checking for Typical Calculation Errors When the two columns are not in balance, here are some quick checks: The difference is 1, such as.01,.10, 1, or 10. The error is most likely in addition. Add the columns again. The difference can be divided evenly by 2. Look for the amount divided by 2 and check to make sure it has been recorded in the correct column. The difference can be divided evenly by 9. Look for transposed numbers or a “slide”. A slide occurs when numbers are moved to the right or left in an amount column. The difference is an omitted amount. Look for an amount equal to the difference.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 18 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 19 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 20 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 LESSON 7-1 How and why do you prepare an income statement?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Reporting Financial Information Why is the general ledger information summarized, organized, and reported to the owners and managers? Why not just give them the worksheet? General ledger information is very detailed…needs to be made more usable Concept: adequate disclosure Financial statements must contain all information necessary to understand a business’s financial condition Concept: accounting period cycle Financial statements must be prepared at the end of each fiscal period Concept: going concern Financial statements are prepared with the expectation that a business will remain in operation indefinitely 22 LESSON 7-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Preparing an income statement Reports financial information over a specific period of time How much profit/loss did a company earn for the month, year, etc. Concept: matching expenses with revenue Revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period Information for the income statement is obtained from the Account Title and Income Statement sections of the work sheet Income statement has four sections: 1.Heading 2.Revenue 3.Expenses 4.Net income or net loss 23 LESSON 7-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 24 LESSON 7-1 INCOME STATEMENT INFORMATION ON A WORK SHEET page 182

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 25 LESSON 7-1 HEADING OF AN INCOME STATEMENT page Center the name of the company on the first line. 2.Center the name of the report on the second line. 3.Center the date of the report on the third line.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 26 LESSON 7-1 REVENUE, EXPENSES, AND NET INCOME SECTIONS OF AN INCOME STATEMENT 1 Revenue 3 Revenue amount 4 Expenses 5 Account titles 6 Expense amount 8 Total expenses 9 Total of expenses 12 Net Income 7 Single line Calculate net income 14 Double lines 13 Record net income 2 Account title page 183

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 27 LESSON 7-1 COMPONENT PERCENTAGE ANALYSIS OF AN INCOME STATEMENT page 184

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Component percentages Revenue reported on an income statement is compared to two components: Total expenses Net income Business owners and managers analyze relationships between these two income statement components and the total sales Component percentage – percentage relationship between one financial statement item and the total that includes that item Divide the amount of each component by the total amount of sales Compare to previous years; compare to industry standard 28 LESSON 7-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 29 LESSON 7-1 INCOME STATEMENT WITH TWO SOURCES OF REVENUE AND A NET LOSS 1 Revenue 3 Revenue amounts 2 Account titles 6 Net Loss 7 Record Net Loss 5 Total Revenue 4 Total of revenue page 185

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 30 LESSON 7-1 TERMS REVIEW component percentage page 186

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 7-2 Balance Sheet Information on a Work Sheet

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Balance Sheet Reports information on a specific date, indicating the financial position of a business Amount assets vs. liabilities Information is transferred from general ledger and work sheet to balance sheet to make it easier to use Information is obtained from the Account Title and Balance Sheet sections of the Work Sheet Balance sheet has four sections: 1.Heading 2.Assets 3.Liabilities 4.Owner’s equity 32 LESSON 7-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 33 LESSON 7-2 BALANCE SHEET page 187

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 34 LESSON 7-2 HEADING OF A BALANCE SHEET page Center the name of the company on the first line. 2.Center the name of the report on the second line. 3.Center the date of the report on the third line.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 35 LESSON 7-2 ASSETS AND LIABILITIES SECTIONS OF A BALANCE SHEET page Liabilities 1 Assets Total Liabilities8 2 Account titles 3 Asset amounts Single line 7 6 Liability amounts 5 Account titles Total of liabilities 9

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 36 LESSON 7-2 OWNER’S EQUITY SECTION OF A BALANCE SHEET page Total Liab. and Owner’s Eq.5 Total Assets 1 Owner’s Equity 2 Account title 3 Capital amount 4 Single line 6 Total of assets 8 Total of Liabilities and Owner’s Equity 9 Compare totals 10 Double lines

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning New Capital Amount Calculations To calculate the new Capital amount for the Balance Sheet use this formula: Old Capital Account Balance (from the Work Sheet) + Net Income (or – Net Loss) - Drawing Account Balance __________________________________________________ New Capital Account Balance

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 38 LESSON 7-2 OWNER’S EQUITY REPORTED IN DETAIL ON A BALANCE SHEET page Beginning capital amount 6 Difference 8 Current capital amount 1 Beginning capital 3 Net Income 4 Drawing Ending capital 7 9 Total Liabilities and Owner’s Equity 5 Single line