Chapter 7Worksheet for a Service Business

Consistent Reporting• General Ledger accounts contain

info needed by managers and owners

• before if can be used, it must be analyzed, summarized & reported

• When the same accounting procedures are used in the same way it is called Consistent Reporting

7.1 Creating a Worksheet

• Fiscal Periods- length of time for which a business summarized and reports financial information (accounting time period)

• Many businesses use a 1-year fiscal period (because of federal and state tax reports once a year)

• Encore uses a 1 month period (starting August 1)

7.1-Worksheet• Work Sheet- a columnar accounting

form used to summarize the general ledger information needed to prepare financial statements

• Used for four reasons:

• Summarize general ledger account balances to prove debits=credits

• To plan needed changes to bring account balances up to date

• Separate general ledger account balances

• Calculate net income/net loss in fiscal period

7.1 Preparing Worksheet Heading

• Name of Company

• Name of Report (Worksheet)

• Date of Report (For Year Ended)

7.1 Preparing a Trial Balance on a Worksheet

• Trial Balance- the totals of all debit and credit account balances shown in a proof of equality

• This information is taken from general ledger balances

• Account titles are listed in the same order as the Chart of Accounts

7.1 Preparing a Trial BalanceSteps

• Write the general ledger account titles

• Write the general ledger debit account balances in Trial Balance Debit Column. Write the general ledger credit account balances in Trial Balance Credit Column. Leave a blank space if there is no balance

• Rule a single line across the two Trial Balance columns below the last line. (Show these columns need to be totaled)

• Add both Trial Balance Debit and Credit columns. (If they don’t =, recheck general ledger balances and math)

• Write totals below single line

• Rule double lines

7.1 Review

• Terms Review

• Audit Your Understanding #1-2

• Work Together #3

• On Your Own #4

7.2 Planning Adjusting Entries on Worksheet

• Please read page 154

• Adjustments- changes recorded on a work sheet to update general ledger accounts at the end of fiscal period

7.2 Supplies Adjustment

• Write the debit amount in the work sheet’s Adjustment Debit column: Supplies Expense

• Write the credit amount in the Adjustment Credit column: Supplies

• Label the two parts of the adjustment with a small letter (a)-identifies to parts of the same adjustment

7.2 Prepaid Insurance Adjustment

• On August 31, Ms. Trevino checked the insurance records and found that the value of insurance coverage remaining was $1,100.00 (used 100.00 in period).

• How can this be shown in the work sheet as an adjustment?

7.1 Proving the Adjustments Column of a Work Sheet

• After all adjustments are recorded in a work sheet’s Adjustments column, the equality of debits and credits for the two columns is proved by totaling and ruling the two columns

7.2 Review

• Terms Review

• Audit Your Understanding #1-2

• Work Together #3-4

• On Your Own #5-6

7.3 Extending Financial Statement Information on a Work Sheet

• Extending Balance Sheet Account Balances on a Work Sheet

• Show balances from the Balance Sheet on the Work Sheet

• See page 159

Extending Account Balances

• Extend the balance of each account to Debit Column (without adjustments)

• Calculate up-to-date Adjusted Balances

• Extend the balance of each account to Credit Column (without adjustments)

Extending Income Statement Balances

• Income Statement- a financial statement showing the revenue and expenses for a fiscal period

• Extend Sales account to Credit Column

• Extend Expenses without Adjustments

• Extend Expenses with Adjustments

Recording Net Income AND Totaling

• Net Income- difference between total revenue and total expenses; when revenue is greater

• Rule a single line across Income and Balance

• Total Income and Balance Sheet Columns

• Calculate Net Income (write Net Income)

• Rule a single line below the Net Inc Amts

• Add subtotal and net income for each column

• Write proving totals and Rule a double line

Preparation Summary

• Between page 160 and 161

7.3 Review: p. 163

• Terms Review

• Audit Your Understanding #1-4

• Work Together #5-7

• On Your Own # 8-10

7.4 Finding and Correcting Errors

• CALCULATION ERRORS- When two columns are not in Balance

• if difference is 1 like $.01, $.10, $1.00

• check Addition

• if difference is divisible by 2

• check for correct recording

• if difference is divisible by 9

• check for transposed numbers

• LOOK for OMITTED Amounts

Correcting

• An Incorrect Amount-

• Draw a line through incorrect amount

• Write correct amount

• Recalculate Balances and correct

• Posting to the wrong column-

• Draw a line through incorrect item

• Record posting in correct column

• Recalculate balance

Errors, cont.

• Checking General Journal-

• Do Debits = Credits?

• Is each general journal entry amount recorded in correct column?

• Is info in Account Title Correct for each entry?

• Are all transactions recorded?

• WORK CAREFULLY TO PREVENT ERROR

7.4 Review- p. 167

• Audit Your Understanding #1-4

• Work Together # 4-6

• On Your Own # 7-9