
Chapter 8 – The six-Column Work Sheet May 16, 2012
Work Sheet • An informal business paper used to organize and plan the information for the financial statements.
Specifically for this Chapter you will learn how to use a 6-column work sheet
Control Accounts • Accounts used to represent the sum of individual accounts of the same type. • Example: Accounts Receivable control accounts is the sum of all the individual Accounts Receivables.
Steps for Preparing a Work Sheet • Step 1 – Write in the heading.
Step 1 • The heading from left to right: • Company name • “Work Sheet” • Year Ended December 31, 20--
Steps for Preparing a Work Sheet • Step 1 – Write in the heading. • Step 2 – Enter all accounts with their balances in the first two columns under “Trial Balance.” Ensure it is in balance.
Steps for Preparing a Work Sheet • Step 1 – Write in the heading. • Step 2 – Enter all accounts with their balances in the first two columns under “Trial Balance.” Ensure it is in balance. • Step 3 - Extend the amounts to the corresponding columns on the right.
Step 3 • Assets and Liabilities go in the two farthest columns under “Balance sheet.” • Sales/Revenue and Expenses go to the middle columns under “Income Statement.”
Steps for Preparing a Work Sheet • Step 1 – Write in the heading. • Step 2 – Enter all accounts with their balances in the first two columns under “Trial Balance.” Ensure it is in balance. • Step 3 - Extend the amounts to the corresponding columns on the right. • Step 4 – Balance the worksheet
Step 4 • The income statement and Balance Sheet, alone, are not expected to balance • The difference between Sales/Revenue and Expenses represents the Net income/loss • The Net Income should also match the difference between assets and liabilities
Net Income or Net Loss • Net Income: Sales/Revenue > Expenses • Represented as a Debit under the Income statement and a Credit under the Balance Sheet columns • Net Loss: Sales/Revenue < Expenses • Represented as a CR under the Income statement and a DR under the Balance Sheet columns
What is the purpose of Accounting? • To make wise business decisions
How do you tell if a company has made a profit or loss? • If Sales/Revenue is greater than expenses
What are the six steps of the accounting cycle learned so far?
What are the six steps of the accounting cycle learned so far? • Transactions occur • Transactions journalized • Journal entries posted to ledger • Trial Balance prepared • Worksheet prepared • Income statement and balance sheet prepared
Chapter 8 – How Accountants use Income Statements May 17, 2012
Comparing Income Statements • Used to calculate the change as either a dollar amount($) or percentage (%)
This is just one example looking specifically at Car Expense
Accountants will use this analysis with several accounts and try to implement changes to make the company more profitable / efficient
Try it yourself 2010 2011 Wages Expense $21,000 $39,000 Calculate both the dollar change and percentage change.
Try it yourself 2010 2011 Wages Expense $21,000 $39,000 Calculate both the dollar change and percentage change. Dollar Change = 39,000-21,000 = 18,000 Percent Increase = 18,000/21,000 = 85.7%
Trend Analysis • Shows financial data over a number of consecutive periods.
When looking at the final results only, important information on variance is ignored
Common-Size Income Statements • Income statements of two companies compared side by side while expense accounts are shown as a percentage of sales.
How Accountants Use Balance Sheets May 23, 2012
What is the purpose of Accounting? To make wise business decisions
The 3 financial documents on a six-column work sheet are: • Trial Balance • Income Statement • Balance Sheet
Fill-in the blank • When creating a six-column worksheet drawings is add to the ___________ column.
Fill-in the blank • When creating a six-column worksheet drawings is add to the Balance Sheet debit column.
True / False • In a six column work sheet, the difference between the assets and the liabilities/capital is the net income/loss.
Fill-in the blanks • Net income occurs when the total _________ of the balance sheet are greater than the total __________ of the balance sheet.
Fill-in the blanks • Net income occurs when the total debits of the balance sheet are greater than the total credits of the balance sheet.