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Understanding Work Sheets and Financial Statements: A Guide for Vulcan Rentalls

This resource provides a comprehensive overview of work sheets as informal business papers for organizing financial information. It explores the components of a 6-column work sheet, including the Trial Balance, Income Statement, and Balance Sheet, while emphasizing the importance of accurately calculating net income or loss. The guide also introduces classified balance sheets, covering current and long-term assets and liabilities. Detailed examples for Vulcan Rentalls for the year ended December 31, 2011, alongside exercises for practice, enhance understanding and application of financial principles.

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Understanding Work Sheets and Financial Statements: A Guide for Vulcan Rentalls

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  1. Review from Yesterday • Work Sheet is an informal business paper used to organize and plan the information for the financial • Introduced to 6 column work sheet (next chapter we will move onto 8 column work sheet which includes adjustments) • Work sheet includes Trial Balance (ALL accounts are listed), Income Statement (Revenue & Expenses, calculates net income or net loss), and Balance sheet (includes assets, liabilities, owner’s equity (drawings & capital) • Total all 4 columns in Income Statement and Balance Sheet

  2. Review Cont. • Difference in totals should equal in the income statement & balance sheet • When there is a profit the balancing figure is placed in the 2 outside columns Balancing Figure

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

  4. Vulcan RentallsIncome StatementYear Ended December 31, 2011 • Create an Income Statement on the sheet provided for Vulcan Rentalls using the work sheet from yesterdays class • Income Statement requires: Revenue & Expenses • Net Income = Revenue > Expenses • Net Loss = Revenue < Expenses

  5. Vulcan RentallsIncome StatementYear Ended December 31, 2011

  6. Classified Balance Sheet • Has the data grouped according to major categories • We have already been introduced to the report form of the balance sheet. It is when the information is presented in a one-above-the-other, or vertical, format.

  7. Major Categories • Assets: • Current assets- unrestricted cash, an asset that will be converted into cash within one year, or an asset that will be used up within one year • Examples: Bank, Accounts Receivable • Fixed assets- a long-term asset held for its usefulness in producing goods or services. Same as Plant and Equipment

  8. Liabilities • Current liability- a short-term debt, payment of which is expected to occur within one year • Examples: Bank Loan, Accounts Payable • Long-term liability- a liability which, in the ordinary course of business, will not be paid within one year • Example: Mortgage Payment

  9. Peoples’ Security Company Classified Balance Sheet December 31, 2011 Heading Assets < 1 year (very liquid) Assets > 1 year Debts to be paid within 1 year (short term) Debts > 1 year Net Income > Drawings

  10. Vulcan RentallsClassified Balance SheetDecember 31, 2011

  11. For tomorrow: • Complete Exercise #1, 2 p. 276 (t), p.192-193 (w) • Start exercise #2 ‘Ying Lo’ p. 292 (t) p. 202-204 (w) * Check posted answers on board

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