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

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LESSON 6-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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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

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LESSON 6-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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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

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LESSON 6-1

1. 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 154

1

2

4

3

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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

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LESSON 6-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 6-2

SUPPLIES ADJUSTMENT ON A WORK SHEET

1

2

page 158

3

1. 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

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LESSON 6-2

PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET page 159

1

23

1. 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

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LESSON 6-2

PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET page 160

3. Rule double lines.

2. Add both the Adjustments Debit and Credit columns. Write each column’s total.

1. Rule a single line.

1

3

2

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

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LESSON 6-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 6-2

(b) 10000

4

(b) 10000

(a) 71500

(a) 71500

3

11000

10000102500120000

200005000

50000062500

35650021300

280030000

881500 881500 81500 81500 146600 356500 734900 525000

356500 734900

1000031000

11000020000

5000500000

62500

6

11000

21300

280030000

356500

10000

71500

7

209900 209900Net Income 89

1

2

5

356500 734900

4964001000015000

49640010000

1500

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 6-3

CALCULATING AND RECORDING A NET LOSS ON A WORK SHEET page 165

2. Totals

3. Net loss

4. Extend net loss

1. Single rule 2

1

3

4

Net loss – difference between total revenue and total expenses when total expenses are greater

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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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

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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

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LESSON 6-4

CORRECTING AN ERROR IN POSTING TO THE WRONG ACCOUNT page 168

1. 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

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LESSON 6-4

CORRECTING AN INCORRECT AMOUNT

12

3

page 169

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.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 6-4

CORRECTING AN AMOUNT POSTED TO THE WRONG COLUMN

4 6

page 169

6. 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.

12

3

5

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

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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

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LESSON 7-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 7-1

INCOME STATEMENT INFORMATION ON A WORK SHEET page 182

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 7-1

HEADING OF AN INCOME STATEMENT

1

2

3

page 182

1. 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

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LESSON 7-1

REVENUE, EXPENSES, AND NET INCOME SECTIONS OF AN INCOME STATEMENT

1Revenue3 Revenue amount

4Expenses

5Account titles 6 Expense amount

8Total expenses 9 Total of expenses

12 Net Income

7 Single line

11 Single line

10 Calculate net income

14 Double lines

13 Record net income

2 Account title

page 183

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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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

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LESSON 7-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 7-1

INCOME STATEMENT WITH TWO SOURCES OF REVENUE AND A NET LOSS

1Revenue

3 Revenue amounts2Account titles

6Net Loss

7 Record Net Loss

5 Total Revenue

4 Total of revenue

page 185

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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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

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LESSON 7-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 7-2

BALANCE SHEET page 187

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 7-2

HEADING OF A BALANCE SHEET page 187

1

2

3

1. 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

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LESSON 7-2

ASSETS AND LIABILITIES SECTIONS OF A BALANCE SHEET page 188

4 Liabilities1 Assets

Total Liabilities8

2 Account titles

3 Asset amounts

Single line 7

6Liability amounts

5Account titles

Total of liabilities 9

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 7-2

OWNER’S EQUITY SECTION OF A BALANCE SHEET page 189

7 Total Liab. and Owner’s Eq.

5 Total Assets

1 Owner’s Equity

2 Account title 3Capital amount

4 Single line

6Total of assets

8Total of Liabilities and Owner’s Equity

9Compare 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

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LESSON 7-2

OWNER’S EQUITY REPORTED IN DETAIL ON A BALANCE SHEET page 190

2Beginning capital amount

6Difference

8Current capital amount

1 Beginning capital

3 Net Income

4 Drawing

Ending capital7

9 Total Liabilities and Owner’s Equity

5 Single line