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LESSON 6-1 Creating a Worksheet CENTURY 21 ACCOUNTING © Thomson/South-Western 2 FISCAL PERIOD page 152 The length of time for which a business summarizes and reports financial information. Concept: Accounting Period Cycle Most use a one year cycle (due to tax reports) Many do monthly reports (to help make decisions) Fiscal period can begin on any date. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1 3 WORK SHEET: Four reasons for use page 153 To summarize general ledger account balances to prove that debits equal credits To plan needed changes to general ledger accounts to bring account balances up to date To separate general ledger account balances according to the financial statements to be prepared To calculate the amount of net income or net loss **Note: Worksheets are not permanent records like a journal or ledger. They are only planning tools. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1 4 PREPARING THE HEADING OF A WORK SHEET 1 2 Name of Company Name of Report 3 CENTURY 21 ACCOUNTING © Thomson/South-Western page 153 Date of Report LESSON 6-1 5 PREPARING A TRIAL BALANCE ON A WORK SHEET 2 1 3 5 page 154 1. Write the general ledger account titles. 2. Write the general ledger debit account balances. Write the general ledger credit account balances. 3. Rule a single line across the two Trial Balance columns. 4 4. Add both the Trial Balance Debit and Credit columns. 5. Write each column’s total below the single line. 6. Rule double lines across 6 both Trial Balance columns. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1 6 TERMS REVIEW page 155 fiscal period work sheet trial balance CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1 LESSON 6-2 Planning Adjusting Entries on a Work Sheet CENTURY 21 ACCOUNTING © Thomson/South-Western 8 PLANNING ADJUSTING ENTRIES page 157 Concept: Matching Expenses with Revenue When revenue from business activities and expenses associated with earning that revenue are recorded in the same accounting period. It wouldn’t be practical to make entries every time you use a supply like a pencil or to record insurance as it expires each day. Adjustments: changes recorded on the work sheet to update general ledger accounts at end of fiscal period. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1 9 PLANNING SUPPLIES ADJUSTING ENTRYpage 158 Four questions in analyzing the adjustment: What is the balance of Supplies? $1025.00 What should the balance be for this account? $310.00 What must be done to correct the account balance? Decrease $715.00 What adjustment is made? Debit Supplies Expense $715.00 Credit Supplies $715.00 CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1 10 SUPPLIES ADJUSTMENT ON A WORK SHEET page 158 2 3 1 1. Write the debit amount. 2. Write the credit amount. 3. Label the two parts of this adjustment. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-2 11 PLANNING INSURANCE ADJUSTMENT page 159 What is the balance of Prepaid Insurance? $1200.00 What should the balance be for this account? $1100.00 What must be dome to correct the account balance? Decrease $100.00 What adjustment is made? Debit Insurance Expense $100.00 Credit Prepaid Insurance $100.00 CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1 12 PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET page 159 2 3 1 1. Write the debit amount. 2. Write the credit amount. 3. Label the two parts of this adjustment. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-2 13 PROVING THE ADJUSTMENTS COLUMNS page 160 OF A WORK SHEET 1 2 1. Rule a single line. 2. Add both the Adjustments Debit and Credit columns. Write each column’s total. 3. Rule double lines. CENTURY 21 ACCOUNTING © Thomson/South-Western 3 LESSON 6-2 14 TERM REVIEW page 161 adjustments CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-2 LESSON 6-3 Extending Financial Statement Information on a Work Sheet CENTURY 21 ACCOUNTING © Thomson/South-Western 16 FINANCIAL STATEMENT BALANCES page 162 Balance Sheet Reports assets, liabilities, and owner’s equity on a specific date. Income Statement Shows the revenue and expenses for a fiscal period. Net Income The difference between total revenue and total expenses Net loss When total expenses are greater than total revenue CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1 17 EXTENDING BALANCE SHEET ACCOUNT page 162 BALANCES ON A WORK SHEET 2 1. Debit balances without adjustments 2. Debit balances with adjustments 3. Credit balances without adjustments CENTURY 21 ACCOUNTING © Thomson/South-Western 1 3 LESSON 6-3 18 EXTENDING INCOME STATEMENT ACCOUNT BALANCES ON A WORK SHEET page 163 1 2 3 1. Sales balance 2. Expense balances without adjustments 3. Expense balances with adjustments CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-3 19 RECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEET 4 1. Single rule 2. Totals 3. Net income 3 4. Extend net income 5. Single rule CENTURY 21 ACCOUNTING © Thomson/South-Western 6 page 164 1 2 7 5 6. Totals 7. Double rule LESSON 6-3 20 CALCULATING AND RECORDING A NET LOSS ON A WORK SHEET page 165 1 3 1. 2. 3. 4. Single rule Totals Net loss Extend net loss CENTURY 21 ACCOUNTING © Thomson/South-Western 4 2 LESSON 6-3 21 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 © Thomson/South-Western LESSON 6-2 22 CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-2 23 1 CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-2 24 1 2 496400 10000 15000 10000 102500 120000 (a) (b) 6 71500 10000 20000 5000 500000 4 62500 356500 356500 21300 (b) 10000 (a) 71500 2800 30000 Net Income 20000 5000 500000 3 62500 11000 881500 881500 10000 31000 110000 81500 8 21300 10000 2800 7 30000 71500 5 11000 81500 146600 356500 734900 525000 209900 209900 356500 356500 734900 734900 9 CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-2 25 TERMS REVIEW page 166 balance sheet income statement net income net loss CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-3 LESSON 6-4 Finding and Correcting Errors on the Work Sheet CENTURY 21 ACCOUNTING © Thomson/South-Western 27 FINDING ERRORS ON A WORK SHEET page 167 The difference is 1, such as $.01, $.10, $1.00, $10.00 Most likely addition error, add again. The difference can be divided by 2 The amount may be in the wrong column (DR instead of CR) The difference can be divided evenly by 9 Transposition (54 instead of 45) Slide ($120.00 becomes $1200.00) The difference is an omitted amount Look for an amount equal to the difference that you forgot to extend. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1 28 CORRECTING AN ERROR IN POSTING TO page 168 THE WRONG ACCOUNT 2 Correct entry 1 Incorrect entry 1. Draw a line through the entire incorrect entry. Recalculate the account balance and correct the work sheet. 2. Record the posting in the correct account. Recalculate the account balance, and correct the work sheet. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-4 29 CORRECTING AN INCORRECT AMOUNT page 169 2 1 3 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 © Thomson/South-Western LESSON 6-4 30 CORRECTING AN AMOUNT POSTED TO THE WRONG COLUMN page 169 2 1 3 5 4 6 4. Draw a line through the incorrect item in the account. 5. Record the posting in the correct amount column. 6. Recalculate the account balance, and correct the work sheet. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-4