Chapter 8 Introduction

What is a Work Sheet?

Is an informal business paper used to organize and plan the information for the financial statements

Usually done in PENCIL Done on columnar bookkeeping

paper

Why?

Why use the Work Sheet? Accountants prefer to use the work

sheet, rather than rely solely on the trial balance sheet

Organizes the accounts for a specific time period

Work Sheet

8 columns are used in the work sheet to allow accounts to make any adjustments required by certain accounting principles

Example of a Work Sheet

ALL A

CO

UN

TS

Any changes?

No longer have debtors’ names associated with Accounts Receivable

No longer have creditors’ names associated with Accounts Payable

Control Accounts

Accounts Receivable Control Account: the sum of the balances of all individual Accounts Receivable

Accounts Payable Control Account: the sum of the balances of all individual Accounts Payable

More efficient for preparing work sheets and provides a more efficient presentation on the balance sheet (kept in separate records, look at in chapter 11)

Steps in Preparation of a work sheet

1. Write the headings on columnar paper

Global LogisticsWork Sheet

Year Ended December 31, 20-4

Company Name

Business Form

Period

Global Logistics Work Sheet Year Ended December 31, 20-4

OR May Look Like this:

2. Record the trial balance on the work sheet

Enter ALL accounts with their balances in the first two columns (trial balance)

Trial balance MUST balance before moving on

DR = CR

3. Make adjustments

The accounting clerk of Global Logistics took a physical inventory and prepared the listing shown in Figure 8.3 on page 280 in text.

The account balance should match the amount produced by the inventory listing: $526.00

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1

Adjusting Insurance Used

Trial Balance shows an amount of $6564 for prepaid insurance

This is out-of-date. Portions have expired.

The value is calculated by means of an insurance listing such as the one shown in Figure 8.5 page 282 (t)

Value remaining: $4070, used up $2494 (6564-4070=2494)

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1

2

2

Late-Arriving Purchases Invoices & Unearned Revenue

Late-Arriving Purchase InvoicesTelephone $245Truck Repair 496Printer Repair 85Total $826

Customer made a $6 000 cash payment in advance of work to be completed in January, 20-5. Cash had been put into bank account and Shipping Revenue was credited

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1

2

2

3

333

4

4

3. Extend the Worksheet

Extend each of the amounts from the trial balance columns into one of the four columns to the right

You may have to add or subtract, depending on what is contained in the adjustments columns. Income Statement revenue & expenses (net income, net

loss) Balance sheet assets, liabilities, capital & drawings

**Be sure that each account balance is transferred only once & that no item is missing

4. Balance the Work Sheet

a) Total the four right-hand money columns

4. Balance the Work Sheet

b) Make sure the difference between Income Statement columns is equal to the difference between the Balance sheet columns.

Known as the BALANCING FIGURE

4. Balance the Work Sheet

C) The work sheet MUST balance. If two figures do not agree, then one or more errors have been made

***YOU MAY NOT PROCEED to the preparation of the financial statements until the errors have been found & corrected!!!!

5. The balancing figures

The work sheet tells the amount of the net income or net loss for the accounting period

Net income = Revenue (credit column) > (greater than) Expense (debit column)

Net Loss = Expense > (greater than) Revenue

When there is a profit the balancing figure is placed in the 2 outside columns. When there is a loss, the balancing figure is placed in the 2 inside columns

Rule off the work sheet

By drawing a single line under the net income totals and a DOUBLE line after the final four totals.

USE A RULER!!!

The Accounting CycleStep 1 Transaction Occurs

(source documents)Step 2   Journal Entry

(daily record of transactions)Step 3 Posting to General Ledger

(update all accounts)Step 4 Trial balance

(DR=CR)Step 5 Worksheet

(informal working doc, calc n/i, n/l)

Step 6 Financial Statements(Income Statement & Balance

sheet)

Classified Balance sheet