Transcript Chapter 6 PowerPoint.pptx

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Chapter 6—Work Sheet for a Service
Business
page 155
Objectives:
 Define accounting terms related to a work sheet for a
service business organized as a proprietorship
 Identify accounting concepts and practices related to a work
sheet for a service business organized as a proprietorship
 Prepare a heading and a trial balance on a work sheet
 Plan adjustments for supplies and prepaid insurance
 Complete a work sheet for a service business organized as
a proprietorship
 Identify selected procedures for finding and correcting errors
in accounting records
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-1
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Chapter 6: TERMS REVIEW
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page 155
fiscal period
work sheet
trial balance
Adjustments
balance sheet
income statement
net income
net loss
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-1
LESSON 6-1: Creating a Worksheet
Accounting Concept—Consistent Reporting
• Is applied when the same accounting
procedures are followed in the same way in
each accounting period
• Without consistent reporting, it would be very
difficult to compare results from year to year
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Fiscal Periods
Fiscal Periods—the length of time for which a business
summarizes and reports financial information
• Most businesses use a one year fiscal period
• The accounting concept Accounting Period Cycle is applied
when changes in financial information are reported for a
specific period of time in the form of financial statements
• Financial information is always summarized and reported at
the end of a fiscal period
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Work Sheet
Work Sheet—a columnar accounting form used to summarize the
general ledger information needed to prepare financial statements; is
a planning document
Accountants use a work sheet for four reasons:
1. To summarize general ledger account balances to prove that
debits equal credits
2. To plan needed changes to general ledger accounts to bring
account balances up to date
3. To separate general ledger account balances according to the
financial statements to be prepared
4. To calculate the amount of net income or net loss for a fiscal
period
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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PREPARING THE HEADING OF A
WORK SHEET
page 153
Who—name of company
What—name of report
When—date of report
1
2
Name of Company
Name of Report
3
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Date of Report
LESSON 6-1
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PREPARING A TRIAL BALANCE ON A
WORK SHEET
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1
3
5
page 154
1. Write the general ledger
account titles.
2. Write the general ledger
debit account balances.
Write the general ledger
credit account balances.
3. Rule a single line across the
two Trial Balance columns.
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4. Add both the Trial Balance
Debit and Credit columns.
5. Write each column’s total
below the single line.
6. Rule double lines across
6 both Trial Balance columns.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-1
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PREPARING A TRIAL BALANCE ON A
WORK SHEET
page 154
Trial Balance—a proof of the equality of debits and credits in a
general ledger
• Information for the trial balance is taken from the general
ledger.
• All accounts are listed in chart of accounts order on a work
sheet whether they have a balance or not.
• Account titles are written in full unless there is not enough
room. If there is not enough room, abbreviations can be used.
• Accuracy is important when copying account balances to the
.
work sheet columns.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-1
LESSON 6-1
Let’s do Work Together 6-1 on
textbook page 155 and On Your
Own 6-1 on textbook page 156 using
Aplia.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-2: Planning Adjusting
Entries on a Work Sheet
The accounting concept Matching Expenses with Revenue is
applied when revenue from business activities and expenses
associated with earning that revenue are recorded in the same
accounting period.
In order to give accurate information on financial statements, some
general ledger accounts must be brought up to date by the end of a
fiscal period.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Adjustments
Adjustments are changes recorded on a work sheet to update
general ledger accounts at the end of a fiscal period.
The assets of a business are used to earn revenue. The portions of
the assets consumed in order to earn revenue become expenses of
the business. Adjustments must be made to both the asset and
expense accounts for supplies and prepaid insurance.
A work sheet is used to plan adjustments. Changes are not made in
general ledger accounts until adjustments are journalized and
posted. The accuracy of the planning for adjustments is checked on
a work sheet before adjustments are actually journalized.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Adjustments
Four questions used to analyze each
adjustment:
1. What is the balance of Supplies or Prepaid
Insurance?
2. What should the balance be for this
account?
3. What must be done to correct the account
balance?
4. What adjustment is made?
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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SUPPLIES ADJUSTMENT ON A
WORK SHEET
page 158
2
3
1
1. Write the debit amount.
2. Write the credit amount.
3. Label the two parts of this adjustment.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-2
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SUPPLIES ADJUSTMENT ON A
WORK SHEET
page 158
The amount of the adjustment is the
amount of supplies used. This amount will
also be the balance of Supplies Expense
after the adjusting entry. After the adjusting
entry, the balance in the asset account,
Supplies, is the cost of the supplies still on
hand.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-2
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PREPAID INSURANCE ADJUSTMENT
ON A WORK SHEET
page 159
2
3
1
1. Write the debit amount.
2. Write the credit amount.
3. Label the two parts of this adjustment.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-2
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PREPAID INSURANCE ADJUSTMENT
ON A WORK SHEET
page 159
The amount of the adjustment is the amount
of insurance coverage used. This amount
will also be the balance of Insurance
Expense after the adjusting entry. After the
adjusting entry, the balance in the asset
account, Prepaid Insurance, is the cost of the
insurance coverage remaining.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-2
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PROVING THE ADJUSTMENTS COLUMNS
page 160
OF A WORK SHEET
1
2
1. Rule a single line.
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2. Add both the Adjustments Debit and Credit columns.
Write each column’s total.
If debits equal credits for each
3. Rule double lines.
adjustment, the total debits and
total credits in the Adjustments
column must also equal.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-2
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PREPARING A WORK SHEET
page 160 C
1. Write the heading.
2. Record the trial balance.
3. Record the supplies adjustment.
4. Record the prepaid insurance adjustment.
5. Prove the Adjustments columns.
6. Extend all balance sheet account balances.
7. Extend all income statement account balances.
8. Calculate and record the net income (or net loss).
9. Total and rule the Income Statement and Balance Sheet
columns.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-2
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Lesson 6-2
Let’s do Work Together 6-2 on
textbook page 161 and On
Your Own 6-2 on textbook
page 161 using Aplia.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-1
Lesson 6-3: Extending Financial
Statement Information on a Work Sheet
In the Accounting Concept Accounting Period Cycle, two
financial statements are prepared from information on the
work sheet.
Balance Sheet—a financial statement that reports assets,
liabilities, and owner’s equity on a specific date.
• The work sheet is used to prepare the balance sheet.
• All accounts extended to the Balance Sheet columns are at
the top of the work sheet, from Cash through the owner’s
drawing account. (anything above Income Summary)
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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EXTENDING BALANCE SHEET ACCOUNT
page 162
BALANCES ON A WORK SHEET
2
1. Debit balances without adjustments
2. Debit balances with adjustments
3. Credit balances without adjustments
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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3
LESSON 6-3
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EXTENDING INCOME STATEMENT ACCOUNT
BALANCES ON A WORK SHEET
page 163
Income Statement—a financial statement showing the
revenue and expenses for a fiscal period
The work sheet will be used to prepare the income statement.
All accounts extended to the Income Statement columns are at
the bottom of the work sheet, from Sales through the last
expense account (anything below Income Summary).
It is very important to extend balances accurately.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-3
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EXTENDING INCOME STATEMENT ACCOUNT
BALANCES ON A WORK SHEET
page 163
1
2
3
1. Sales balance
2. Expense balances without adjustments
3. Expense balances with adjustments
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-3
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RECORDING NET INCOME, AND
TOTALING AND RULING A WORK SHEET
page 164
Net Income—the difference between total revenue and total
expenses when total revenue is greater
Before the work sheet is complete, net income must be calculated
and the work sheet must be totaled and ruled.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-3
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RECORDING NET INCOME, AND
TOTALING AND RULING A WORK SHEET
4
1. Single rule
2. Totals
3. Net income
3
4. Extend net income
5. Single rule
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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page 164
1
2
7
5
6. Totals
7. Double rule
LESSON 6-3
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CALCULATING AND RECORDING A NET
LOSS ON A WORK SHEET
page 165
1
3
1.
2.
3.
4.
Single rule
Totals
Net loss
Extend net loss
4
2
Net Loss—the difference between total
revenue and total expenses when total
expenses are greater
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-3
LESSON 6-3
Let’s do Work Together 6-3 on
textbook page 166 and On Your
Own 6-3 on textbook page 166
using Aplia.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Lesson 6-4: Finding and Correcting
Errors on the Work Sheet
Any errors found on a work sheet
should be corrected before any
further work is completed. If an
incorrect amount is found on a work
sheet, correct it. If an amount is
written in an incorrect column, record
it in the correct column.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Checking for Typical Calculation
Errors
When two column totals are not in balance, subtract the smaller total
from the larger total to find the difference. Check the difference
between the two amounts against the following guides:
1. The difference is 1, such as $.01, $.10, $1.00, or $10.00—the
error is most likely in addition
2. The difference can be divided evenly by 2—check to see if it is
recorded in the correct column in the journal or in an account
3. The difference can be divided evenly by 9—could be a
transposed error or a slide error
4. The difference is an omitted amount—could be that it has not
been extended
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Checking for Errors in the Work
Sheet
Check for Errors in the Trial Balance Columns
1. Have all general ledger account balances been copied
correctly?
2. Have all general ledger account balances been recorded in
the correct Trial Balance column?
Check for Errors in the Adjustments Column
1. Do the debits equal the credits for each adjustment?
2. Is the amount for each adjustment correct?
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Checking for Errors in the Work
Sheet
Check for Errors in the Income Statement and Balance Sheet
Columns
1. Has each amount been copied correctly when extended to the
Income Statement or Balance Sheet column?
2. Has each account balance been extended to the correct Income
Statement or Balance Sheet column?
3. Has the net income or net loss been calculated correctly?
4. Has the net income or net loss been recorded in the correct
Income Statement or Balance Sheet column?
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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CORRECTING AN ERROR IN POSTING TO
page 168
THE WRONG ACCOUNT
2 Correct entry
1 Incorrect entry
1. Draw a line through the entire incorrect entry. Recalculate the account
balance and correct the work sheet.
2. Record the posting in the correct account. Recalculate the account
balance, and correct the work sheet.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-4
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CORRECTING AN INCORRECT AMOUNT
page 169
2
1
3
1. Draw a line through the incorrect amount.
2. Write the correct amount just above the correction in the same space.
3. Recalculate the account balance, and correct the account balance on
the work sheet.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-4
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CORRECTING AN AMOUNT POSTED TO
THE WRONG COLUMN
page 169
2
1
3
5
4
6
4. Draw a line through the incorrect item in the account.
5. Record the posting in the correct amount column.
6. Recalculate the account balance, and correct the work sheet.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-4
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Checking for Errors in Journal Entries
1. Do debits equal credits in each journal page?
2. Is each journal entry amount recorded in the correct journal
column?
3. Is information in the Account Title column correct for each
journal entry?
4. Are all of the journal amount column totals correct?
5. Does the sum of debit column totals equal the sum of credit
column totals in the journal?
6. Have all transactions been recorded?
The best way to prevent errors is to work carefully at all times.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-1
36
Lesson 6-4
Let’s do Work Together 6-4 on textbook
page 170 and On Your Own 6-4 on
textbook page 170 using Aplia.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-1
37
Chapter 6 Assignments
Chapter 6 Study Guide
Problems:
•6-1 Application Problem
•6-2 Application Problem
•6-3 Application Problem
•6-4 Application Problem
•6-5 Mastery Problem
•6-6 Challenge Problem
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 6-1