Chapter 6

1. Chapter 6 Work Sheet for a Service Business

2. Unit 3 • Accounting Concept: Consistent Reporting • The same accounting procedures are followed in the same way in each accounting period • Allows comparison of like information • apples to apples

3. Fiscal Period • The length of time for which a business summarizes and reports financial information • Usually a fiscal year, since federal and state taxes are based on one year • Can begin on any day, but usually starts on first of the month • Many businesses choose to end their fiscal period when there is low business activity • Techno Consulting is using month long fiscal periods • Financial information is reported frequently to help make decisions • Started August 1st, so fiscal period is Aug 1st through Aug 31st

4. Work sheet • A columnar accounting form used to summarize the general ledger information so that financial statements can be prepared • Accountants use work sheets to: • Summarize general ledger account balances to prove that debits equal credits • Plan needed changes to general ledger accounts to bring account balances up to date • Separate general ledger account balances according to the financial statements to be prepared • Calculate the amount of net income or net loss for a fiscal period

5. Journals and Ledgers are permanent records of a business are completed in ink or printed by a computer Work sheets are planning tools and not a permanent accounting records are prepared in pencil

6. WORK SHEET: HEADING Name of Company Name of report Date of report For fiscal year, would say “For the Year Ended ----”

7. Account Balances from General Ledgers WORK SHEET: Preparing a Trial Balance Account Titles Single rule Totals Double Rule

8. Practice! • Work Together 6 -1 • WP p. 121 • Txtbk p. 155 • Homework: • On Your Own 6-1 • WP p. 121 • Txtbk p. 155

9. Work Sheet: Planning Adjusting Entries • Accounting Concept:Matching Expenses with Revenue • Supplies and Prepaid insurance are used to earn revenue • What you use of the supplies and insurance become expenses when they are used to earn revenue • ADJUSTMENTS are made on a work sheet to show these expenses at the end of a fiscal period

10. Work Sheet: Supplies Adjustment • On August 31st before adjustments, the balance of Supplies is $1025.00; Supplies expense is $0 • T- Accounts • On August 31st, Ms. Park counted her supplies on hand and found that the value of supplies still unused was $310.00 • The used supplies is calculated

11. Work Sheet: Supplies Adjustment • Ask 4 questions: • What is the balance of supplies? • $1,025.00 • 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 Concept: Matching Expenses with Revenue

12. Work Sheet: Supplies Adjustment • The Adjustment on the Work Sheet: • Supplies - Credit $715 • Supplies Expense – Debit $715 • Write the debit amount $715, in the work sheet’s Adjustments Debit column • on the line with the account title Supplies Expense. • Write the credit amount, $715, in the Adjustments Credit column on the • line with the account title Supplies • Label the two parts of this adjustment with a small letter a in parenthesis to show • they go together.

13. Work Sheet: Prepd Insurance Adjustment • On August 31st before adjustments, the balance of Prepaid Insurance is $1200.00; Insurance expense is $0 • T- Accounts • On August 31st, Ms. Park checked her insurance records and found the value of insurance coverage remaining was $1,100.00. • The value of used insurance coverage is calculated

14. Work Sheet: Prepd Insurance Adjustment • Ask 4 questions: • What is the balance of Prepaid Insurance? • $1,200.00 • What should the balance be for this account? • $ 1,100.00 • What must be done to correct the account balance? • Decrease $100.00 • What adjustment is made? • Debit Insurance Expense $100.00 • Credit Prepaid Insurance $100.00 Concept: Matching Expenses with Revenue

15. Work Sheet: Prepd Insurance Adjustment • The Adjustment on the Work Sheet: • Prepaid Insurance - Credit $100 • Insurance Expense – Debit $100 • Write the debit amount $100, in the work sheet’s Adjustments Debit column • on the line with the account title Insurance Expense. • Write the credit amount, $100, in the Adjustments Credit column on the • line with the account title Prepaid Insurance • Label the two parts of this adjustment with a small letter b in parenthesis to show • they go together.

16. Practice! • Work Together 6-2 #1 • WP p. 121 • Txtbk p. 161 • HOMEWORK: • On Your Own 6-2 #1 • WP p. 122 • Txtbk p. 161

17. The Steps of Preparing a Work SheetPart 1 • Txtbk pp. 160 A,B,C Record the prepaid insurance adjust- ment Write the Heading Record and prove the Trial Balance Record the supplies adjust-ment Prove the adjust- ment columns

18. Work Sheet: Extending Financial Statement Information At fiscal year end, 2 financial statements are prepared using info from a work sheet Balance Sheet A financial statement that reports assets, liabilities and owner’s equity on a specific date. Up-to-date balance sheet account balances are extended to the Balance Sheet Debit and Credit columns of the work sheet. Income Statement A financial statement that shows the revenue and expenses for a fiscal period. Up-to-date income statement account balances are extended to the Income Statement Debit and Credit columns of thework sheet.

19. Work Sheet: Extending Balance Sheet Account Balances Extend the up-to-date asset balances to the Balance Sheet Debit Column Extend the up-to-date liability balances to the Balance Sheet Debit Column Extend the up-to-date owners equity balances to the Balance Sheet Debit Column Total Balance Sheet Debit and Credit Columns

20. Work Sheet: Extending Income Statement Acct Balances Extend the up-to-date revenue balances to the Income Statement Credit Column Extend the up-to-date expense balances to the Income Statement Debit Column Total Balance Sheet Debit and Credit Columns Income Statement Debits + Balance Sheet Debits = Income Statement Credits + Balance Sheet Credits

21. Work Sheet: Recording Net Income, Totaling and Ruling a Work Sheet • Net Income: The difference between • total revenue and total expenses • (when total income is more than total expenses) • Calculate Net Income • Income Statement Credit column total – Income Statement Debit column total • Label Net Income on the next line • Write the Net Income amount below the Income Statement Debit Column total • Extend the amount of Net Income to the Balance Sheet Credit column • The owner’s equity account increases by a credit • Rule a single line across the four Income Statement and Balance Sheet columns • Add all amounts to prove Income Statement and Balance Sheet debits and credits • Double Rule

22. Work Sheet: Recording Net Income, Totaling and Ruling a Work Sheet Calculate Net Income: Income Statement Credit amount – Income Statement Debit amount Write in Income Statement Debit column Label “Net Income” on the next line Extend the amount to Balance Sheet Credit Single rule, total all columns, and double rule to prove

23. Work Sheet: Recording Net LOSSS Calculate Net Loss: Income Statement Debit amount minus Income Statement Credit amount Write in Income Statement Credit column Extend the amount to Balance Sheet Debit Label “Net Income” on the next line Single rule, total all columns, and double rule to prove

24. Work on now and for homework • OYO 6-3 • WP p. 122, Txtbk p. 166 • Application Problem 6-1, 6-2, 6-3 • WP p. 133, Txtbk p. 172

25. LET’S REVIEW THE STEPS…

26. The Steps of Preparing a Work SheetPart 1 • Txtbk pp. 160 A,B,C Record the prepaid insurance adjust- ment Write the Heading Record and prove the Trial Balance Record the supplies adjust-ment Prove the adjust- ment columns

27. The Steps of Preparing a Work SheetPart 2 • Txtbk pp. 160 A,B,C Calculate and record the net income or net loss Extend the net income or loss amount to the balance sheet Total and rule the Income Statement and Balance Sheet columns

28. Practice! • WT 6 – 3 • WP p. 121, Txtbk p. 166

29. FINDING AND CORRECTING ERRORS

30. FINDING ERRORS 1st: Check the work sheets 2nd: If no errors found on the work sheets, check the postings to the general ledgers 3rd: If error not yet found, check journal entries

31. FINDING ERRORS: TYPES OF ERRORS AND WHAT TO LOOK FOR Check the differences between columns: • A difference of 1 - $.01, $.10, $1.00 or $10.00 • Most likely an addition error • Can be divided evenly by 2 • For example, if the difference between the column totals is $48.00, check to see if a $24.00 entry is recorded correctly • Can be divided evenly by 9 • Check for a transposition, such as 54 written as 45 or 19 written as 91 • Check for a slide: a number moved to the right or left, i.e.$12.00 recorded as $120.00 or $350.00 recorded as $35.00 • Is an omitted amount • Look for an amount equal to the difference • On the work sheet • In the accounts and journals

32. FINDING ERRORS: IN THE WORK SHEET • Check errors in the Trial Balance • Amounts copied correctly? • Recorded in the correct columns? • Check for Errors in the Adjustments Columns • Is the amount for each adjustment correct? • Do debits equal credits for each adjustment? • Use the small letters to check • Check for Errors in the Income Statement and Balance Sheet Column • Copy the amount correctly? • Amounts in the correct columns? • Has net income/ net loss been calcualted correctly? • Has net income/ net loss been recorded in the correct column?

33. CORRECTIONS: ON THE WORK SHEET • Erase, correct, and recalculate

34. FINDING ERRORS: ON THE GENERAL LEDGERS • If no error found on work sheets • Look back to Journal postings to the General Ledgers • Place a check mark next to each verified entry

35. CORRECTING ERRORS: FROM THE GENERAL LEDGER • Posted to the wrong general ledger account • Draw a line through the entire incorrect entry • Recalculate the account balance and correct the worksheet • Record the posting in the correct account • Recalculate the account balance and correct the work sheet • Posted an incorrect amount • Draw a line through the incorrect amount • Write the correct amount just above the correct in the same space • Recalculate the account balance • Correct the account balance on the work sheet • Posted to the wrong column • Draw a line through the incorrect item in the account • Record the posting in the correct amount column • Recalculate the account balance • Correct the account balance on the work sheet

36. CORRECTING ERRORS: FROM THE GENERAL LEDGER • Posted to the wrong general ledger account • Draw a line through the entire incorrect entry • Recalculate the account balance and correct the worksheet • Record the posting in the correct account • Recalculate the account balance and correct the work sheet • Posted an incorrect amount • Draw a line through the incorrect amount • Write the correct amount just above the correct in the same space • Recalculate the account balance • Correct the account balance on the work sheet • Posted to the wrong column • Draw a line through the incorrect item in the account • Record the posting in the correct amount column • Recalculate the account balance • Correct the account balance on the work sheet

37. FINDING ERRORS: IN JOURNAL ENTRIES • Do debits equal credits in each entry? • Is each entry amount in the correct column? • Are all column totals correct? • Does the sum of debit column totals equal the sum of credit column totals? • Are any transactions missing?

38. PREVENTING ERRORS: • Work carefully! • Check the work at each step • Use a printing calculator so you have a tape of calculations

39. PRACTICE! • WT 6 – 4 • OYO 6- 4 • App 6 – 4 • Homework: Mastery Problem