CHAPTER 16

Worksheet for a Merchandising Business

Worksheet Reasons

Prove equality of debits & credits.

Summarizes financial information needed to prepare financial statements.

Plan adjustments

Calculate net income/loss.

Prepare a Worksheet

1. Prepare the Heading Name of the business, Name of the report, Date of the

report

2. Prepare the Trial BalanceTrial Balance: a proof of the equality of debits

and credits in the general ledger.

3. Prepare the Adjustments Adjustments: changes recorded to update

general ledger accounts at the end of the fiscal period.

Prepare Adjustments

4 Questions to Ask

1. What is the balance?

2. What should the balance be?

3. What must be done to correct the account

balance?

4. What adjustment is made?

Adjustments

1. Supplies (supplies, supplies expense)

2. Prepaid Insurance (prepaid insurance)

3. Merchandise (merchandise inventory,

income summary)

Merchandise Inventory

1. Inventory: the amount of goods on hand

2. Merchandise Inventory: the amount of

goods for sale to customers

3. Merchandise Inventory is an ASSET

Merchandise Inventory Example

1. What is the balance? $225,400 (inventory)

2. What should the balance be? $212,200 (actual

count)

3. What must be done to correct the balance?

Decrease by $13,200 (amount used/sold)

4. What adjustment must be made? Debit

Income Summary, Credit Merchandise Inventory

Prepare a Worksheet

4. Extend account balances Balance Sheet: a financial statement that reports

assets, liabilities, and owner’s equity on a specific date.

Income Statement: a financial statement showing revenue and expenses for a fiscal period.

The balances on a worksheet are extended to columns for the two financial statements.

5. Calculate net income or net loss Income Statement Credit minus Income Statement

Credit