LESSON 6-1

LESSON 6-1Creating a WorksheetLESSON 6-110/15/14GREEN1Fiscal PeriodThe length of time for which a business summarizes and reports financial information is called a fiscal period (also known as accounting period).

Each business chooses a fiscal period length that meets its needs. Because federal and state tax reports are based on one-year, most businesses use a one-year fiscal period. Most businesses use their fiscal period starting with the first day of the month.

Work SheetA columnar accounting form used to summarize the general ledger information needed to prepare financial statements is called a work sheet.

Accountants use work sheets for four reasons:To summarize general ledger account balances to prove that debits equal creditsTo plan needed changes to general ledger accounts to bring account balances up to dateTo separate general ledger account balances according to the financial statements to be preparedTo calculate the amount of net income or net loss for a fiscal period

Work SheetJournals and ledgers are permanent records of a business and are usually prepared in ink or printed by a computer. However, a worksheet is a planning tool and is not considered a permanent accounting record. Therefore, a work sheet is prepared in pencil.

5LESSON 6-1PREPARING THE HEADING OF A WORK SHEET

page 153Name of Company1Name of Report2Date of Report3Trial BalanceA proof of the equality of debits and credits in a general ledger is called the trial balance.

Information for the trial balance is taken from the general ledger. General ledger account titles listed on a trial balance in the same order as they are listed on the chart of accounts. All the account titles are listed, even if some accounts do not have balances.

7LESSON 6-11.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 columns total below the single line.6.Rule double lines across both Trial Balance columns.PREPARING A TRIAL BALANCE ON A WORK SHEET

page 1541243568LESSON 6-1TERMS REVIEWfiscal periodwork sheettrial balancepage 155LESSON 6-2Planning Adjusting Entries on a Work SheetLESSON 6-210/15/14GREEN9Planning AdjustmentsSometimes a business will pay cash for an expense in one fiscal period, but the expense is not used until a later period. The expense should be reported in the same fiscal period that is used to produce revenue.

EXAMPLEFor example, TechKnow Consulting buys supplies in quantity in August, but some of the supplies are not used until September. Only the value of the supplies used in August should be reported as expenses in August. In this way, August revenue and the supplies expense associated with earning the August revenue are recorded in the same accounting period.

For example, Tech Know Consulting debits an asset account, Supplies, each value owned by a business until the supplies are used. The value of supplies that are used becomes an expense to the business. However, recording an expense each time an individual supply, such as a pencil, is used would be impractical. Therefore, on August 31 that balance of the asset account, Supplies, is the value of all supplies that have not yet been used. The amount of supplies that have been used must be deducted from the asset account, Supplies, and recorded in the expense account, Supplies Expense.

ADJUSTMENTSChanges recorded on a work sheet to update general ledger accounts at the end of the fiscal period are called adjustments.

13LESSON 6-2SUPPLIES ADJUSTMENT ON A WORK SHEET

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1.Write the debit amount.2.Write the credit amount.3.Label the two parts of this adjustment.14LESSON 6-2PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET

page 1591231.Write the debit amount.2.Write the credit amount.3.Label the two parts of this adjustment.15LESSON 6-2

PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEETpage 1603.Rule double lines.2.Add both the Adjustments Debit and Credit columns. Write each columns total.1.Rule a single line.13216LESSON 6-2PREPARING A WORK SHEETpage 160 C1.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.17LESSON 6-2

18LESSON 6-2

119LESSON 6-2

(b) 100004(b) 10000(a) 71500(a) 715003496400100001500011000100001025001200002000050005000006250035650021300280030000881500881500815008150014660035650073490052500035650073490049640010000150001000031000110000200005000500000625006110002130028003000035650010000715007209900209900Net Income8912535650073490020LESSON 6-2TERM REVIEWadjustmentspage 161LESSON 6-3Extending Financial Statement Information on a Work SheetLESSON 6-310/15/14GREEN21Balance SheetA financial statement that reports assets, liabilities, and owners equity on a specific date is called a balance sheet.

23LESSON 6-3EXTENDING BALANCE SHEET ACCOUNT BALANCES ON A WORK SHEET

page 1621.Debit balances without adjustments2.Debit balances with adjustments3.Credit balances without adjustments321LESSON 6-310/15/14GREEN23Income StatementA financial statement showing the revenue and expenses for a fiscal period is called an income statement.

25LESSON 6-3EXTENDING INCOME STATEMENT ACCOUNT BALANCES ON A WORK SHEET

page 1631.Sales balance2.Expense balances without adjustments3.Expense balances with adjustments132Net incomeThe difference between total revenue and total expenses when total revenue is greater is called net income.

The difference between total revenue and total expenses when total expenses are greater is called a net loss.

27LESSON 6-31.Single rule2.Totals3.Net incomeRECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEETpage 1644.Extend net income

6.Totals67352145.Single rule7.Double rule28LESSON 6-3CALCULATING AND RECORDING A NET LOSS ON A WORK SHEET

page 1652.Totals3.Net loss4.Extend net loss1.Single rule213429LESSON 6-3TERMS REVIEWbalance sheetincome statementnet incomenet losspage 166LESSON 6-4Finding and Correcting Errors on the Work SheetLESSON 6-410/15/14GREEN3031LESSON 6-4CORRECTING AN ERROR IN POSTING TO THE WRONG ACCOUNT

page 1681.Draw a line through the entire incorrect entry. Recalculate the account balance and correct the work sheet.2Correct entry1Incorrect entry2.Record the posting in the correct account. Recalculate the account balance, and correct the work sheet.32LESSON 6-4CORRECTING AN INCORRECT AMOUNT

123page 1691.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.33LESSON 6-4CORRECTING AN AMOUNT POSTED TO THE WRONG COLUMN

46page 1696.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.1235