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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 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
5 6
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 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
9
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
10
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
11
LESSON 6-1
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
12
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
13
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
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 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
19
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
20
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
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
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
26
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
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
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
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 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
35
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
36
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
38
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