CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 4-3 Preparing a Work Sheet for a Departmentalized Business Modified by D. Burns West Johnston High

CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 4-3LESSON 4-3

Preparing a Work Sheet for a Departmentalized Business

Modified by D. Burns West Johnston High School

CENTURY 21 ACCOUNTING © Thomson/South-Western Modified by D. Burns West Johnston High School

PROVING THE ACCURACY OF POSTING PROVING THE ACCURACY OF POSTING TO SUBSIDIARY LEDGERSTO SUBSIDIARY LEDGERS page 99

A list of customer accounts, account balances, & total amount due from al customers is called a schedule of accounts receivable

A list of vendor accounts, account balances, & total amount due all vendors is called a schedule of accounts payable


EXPANDED WORK SHEETEXPANDED WORK SHEET


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

• A proof of the equality of debits & credits in a general ledger is called a trial balance. • Should always be prepared as part of the end-of-

fiscal-period activities• Prepared in the Trial Balance columns of the work

sheet


TRIAL BALANCE COLUMNSTRIAL BALANCE COLUMNS


• Accounts are listed in the Account Title column in the same order in which they appear in the general ledger.

• All accounts are listed, regardless of whether there is a balance or not

• In a departmental work sheet there is an income summary account for each department and a general income summary.• Income Summary – Audio• Income Summary – Video• Income Summary – General

• After all general ledger accounts & balances have been entered, the Trial Balance columns are totaled, checked for equality, & ruled


ADJUSTMENTS ON A WORK SHEET ADJUSTMENTS ON A WORK SHEET WITH DEPARTMENTAL MARGINSWITH DEPARTMENTAL MARGINS


• At the end of the fiscal period general ledger accounts need to be brought up to date.

• Entries needed to bring accounts up to date are planned in the Adjustments columns of the work sheet• Departmental merchandise inventory adjustments are

recorded in each department’s appropriate income summary account

• Adjustments are also made for:

• Uncollectible Accounts expense

• Supplies Used• Insurance Expired

• Depreciation• Estimated Federal Income

Tax Expense


ADJUSTMENTS ON A WORK SHEET ADJUSTMENTS ON A WORK SHEET WITH DEPARTMENTAL MARGINSWITH DEPARTMENTAL MARGINS


• Each department also has a Departmental Margin account listed below the expense accounts

• Below the Departmental Margin account the Federal Income Tax Expense account is listed• This simplifies subtotaling the income statement columns &

calculating additional income tax expense


pages 102-103DEPARTMENTAL WORK SHEETDEPARTMENTAL WORK SHEET

Trial BalanceAdjustments

Departmental Income Summary Accts.


DEPARTMENTAL WORK SHEETDEPARTMENTAL WORK SHEET pages 102-103

Departmental Margin Accts.


ADJUSTMENTS SHOWN ON ADJUSTMENTS SHOWN ON WORK SHEETWORK SHEET

PercentageTotal Saleson Account

Estimated Uncollectible Accounts Expense

× =

$210,940.00 × = $2,109.401%

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Uncollectible Accounts Expense Adjustment When business use the Allowance Method to determine

Uncollectible accounts the adjustment on the worksheet will be the percentage determined to be uncollectible

Uncollectible Accounts Expense $2,109.40 Allowance for Uncollectible Accounts $2,109.40


ADJUSTMENTS SHOWN ON WORK SHEET - ADJUSTMENTS SHOWN ON WORK SHEET - MERCHANDISE INVENTORY MERCHANDISE INVENTORY


The merchandise inventory account balances in the trial balance are the beginning inventory amounts for a fiscal period.

The amount of the ending inventory can be determined by taking a periodic inventory, perpetual inventory, or other methods. The inventory adjustment is made through the department’s Income

Summary account

If the ending inventory is HIGHER than beginning inventory:Merchandise Inventory - Audio $18,420.39 Income Summary – Audio $18,420.39

If the ending inventory is LOWER than beginning inventory:Income Summary – Audio $9,360.00 Merchandise Inventory – Audio $9,360.00


ADJUSTMENTS SHOWN ON WORK SHEET - ADJUSTMENTS SHOWN ON WORK SHEET - SUPPLIESSUPPLIES


The Supplies Account balance in a trial balance includes two items: The account balance on January 1 The cost of supplies bought during the year

Supplies are counted at the end of the fiscal period to determine the adjustment needed

Separate asset and expense accounts are maintained for each department

Supplies Expense - Administrative $2,922.00 Supplies – Administrative $2,922.00


ADJUSTMENTS SHOWN ON WORK SHEET - ADJUSTMENTS SHOWN ON WORK SHEET - INSURANCEINSURANCE


The Prepaid Insurance account balance includes: The account balance on January 1 The amount of insurance premiums paid during the year

The balance does not reflect the amount of insurance used during the year. The amount of unexpired insurance is determined at the end of a fiscal period

Insurance Expense $5,650.00 Prepaid Insurance $5,650.00


ADJUSTMENTS SHOWN ON WORK SHEET - ADJUSTMENTS SHOWN ON WORK SHEET - DEPRECIATIONDEPRECIATION


Assets that will be used for a number of years in the operation of a business are called plant assets

The portion of a plant asset’s cost that is transferred to an expense account in each fiscal period during a plant asset’s useful life is called depreciation expense

Depreciation Expense-Office Equip. $852.07 Accum. Depreciation-Office Equip. $852.07


ADJUSTMENTS SHOWN ON WORK SHEET - ADJUSTMENTS SHOWN ON WORK SHEET - FEDERAL INCOME TAX EXPENSEFEDERAL INCOME TAX EXPENSE


An adjustment must be made at the end of the fiscal period to record the actual Federal Income Tax liability for the year.

The adjustment if figured: Actual income tax liability – Balance in Federal Income Tax

payable = Adjustment

Federal Income Tax Expense $852.07 Federal Income Tax Payable $852.07


COMPLETING A WORK SHEET WITH COMPLETING A WORK SHEET WITH DEPARTMENTAL MARGIN COLUMNSDEPARTMENTAL MARGIN COLUMNS


1. Extend the asset, liability, & stockholders’ equity account balances to the Balance Sheet columns

2. Extend the up-to date balances of the income summary accountsto the Departmental Margin columns




3. Extend the up-to date balances of the revenue, cost, & direct expense accounts for the departments to the Departmental Margin

4. Extend the indirect expense items to the Income Statement Debit column

5. Calculate the departmental margin for each department

6. Extend the adjusted balance of federal income tax expense amount to the Income Statement debit column


2. Write department loss in Income Statement Debit column.

1. Write department loss in Departmental Margin Statement Credit column.

DEPARTMENTAL AND COMPANY DEPARTMENTAL AND COMPANY LOSS ON A WORK SHEETLOSS ON A WORK SHEET

55

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11 22 33 44

3. Record company loss in Income Statement Credit column.

4. Record company loss in Balance Sheet Debit column.

5. Add description.




7. Total the Income Statement & Balance Sheet columns calculate & record net income after federal income tax.

8. The difference between the two Income Statement column totals on the work sheet is the net income or net loss for a fiscal period. The difference between the two balance sheet columns also represents the net income or net loss.

9. After the net income amount is written in the two work sheet columns, the last four columns are totaled again


TERMS REVIEWTERMS REVIEW

schedule of accounts receivable schedule of accounts payable work sheet trial balance plant assets depreciation expense

page 110

Documents

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 4-3 Preparing a Work Sheet for a Departmentalized Business Modified by D. Burns West Johnston High