Chapter 6 Test Cheat sheet
adjustments: changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period
balance sheet: a financial statement that reports assets, liabilities, and owner’s equity on a specific date
fiscal period: the length of time for which a business summarizes and reports financial information
income statement: a financial statement showing the revenue and expenses for a fiscal period
net income: the difference between total revenue and total expenses when total revenue is greater
net loss: the difference between total revenue and total expenses when total expenses are greater
trial balance: a proof of the equality of debits and credits in a general ledger
work sheet: a columnar accounting form used to summarize the general ledger information needed to prepare
financial statements
Accounting Concepts
 Matching expenses with revenue
o Recording revenue from business activities and expenses associated with earning that revenue in the
same accounting period
 Making adjustments to general ledger accounts is an application
 Consistent reporting
o Accounting procedures must be followed the same way in each accounting period
 Reports must be done the same way from one period (year) to another
 Accounting period cycle
o Reporting changes in financial information for a specific period of time in the form of financial
statements
Adjustments
 Supplies adjustment
o The balance of the supplies account – the value of supplies on hand = the amount of the adjustment
 Debit Supplies Expense
Credit Supplies
 Insurance adjustment
o The balance of the insurance account – the value of the insurance still remaining = the amount of
the adjustment
 Debit Insurance Expense
Credit Prepaid Insurance
Errors
 Rule of 1
o If the trial balance columns are a difference of 1, the error often is addition
 Rule of 2
o If the error in the trial balance equals $50, the error most likely is an amount of $25 being put in the
wrong column (debit v. credit)
 Rule of 9
o If the error is divisible by 9, the error is most like a transposition (inverting numbers) not addition
 If a pair of worksheet columns do not balance (equal) and the difference appears elsewhere on the
worksheet, the error is probably an amount that has not been extended
 If an amount is written incorrectly on the worksheet, the error can be erased and fixed
o Worksheets are not permanent records (can be changed)
Miscellaneous
 Two financial statements (income statement & balance sheet) are prepared from the info on a worksheet
o Net income is calculated by subtracting the income statement debit column from the income
statement credit column (Net loss is the opposite)
o The net income amount is entered in the worksheets income statement debit and balance sheet credit
columns (Net loss is the opposite)
o The balance of expenses are in the income statement debit column (revenue is in the credit)
 On a trial balance, all general ledger account titles are listed