Unit 2
The Basic Accounting Cycle
Chapter 3
Business Transactions and the Accounting Equation
Chapter 4
Transactions That Affect Assets, Liabilities, and Owner’s Capital
Chapter 5
Transactions That Affect Revenue, Expenses, and Withdrawals
Chapter 6
Recording Transactions in a General Journal
Chapter 7
Posting Journal Entries to General Ledger Accounts
Chapter 8
The Six-Column Work Sheet
Chapter 9
Financial Statements for a Sole Proprietorship
Chapter 10 Completing the Accounting Cycle for a Sole Proprietorship
Chapter 11 Cash Control and Banking Activities
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Chapter 8
The Six-Column Work Sheet
What You’ll Learn





Explain the purpose of the work sheet.
Describe the parts of a six-column work sheet.
Prepare a six-column work sheet.
Calculate net income and net loss.
Define the accounting terms introduced in this
chapter.
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Chapter 8, Section 1
Preparing the Work Sheet
What Do You Think?
Why would it be difficult to use ledger accounts to
prepare financial reports?
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SECTION 8.1
Preparing the Work Sheet
Main Idea
The work sheet organizes general ledger account
information for the financial statements.
You Will Learn
 the purpose of a work sheet.
 the sections of a work sheet.
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SECTION 8.1
Preparing the Work Sheet
Key Terms
 work sheet
 ruling
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SECTION 8.1
Preparing the Work Sheet
The Sixth Step of the Accounting Cycle:
The Work Sheet
A work sheet is a working paper used to collect
information from the ledger in one place. An accountant
uses a work sheet to:
 gather information to prepare financial
statements.
 complete other end-of-period activities.
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SECTION 8.1
Preparing the Work Sheet
The Work Sheet Sections
There are five work sheet sections:
1. the heading
2. the Account Name section
3. the Trial Balance section
4. the Income Statement section
5. the Balance Sheet section
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SECTION 8.1
Preparing the Work Sheet
The Work Sheet Heading
The heading contains three kinds of information:
 Who – The name of the business
 What – The name of the accounting form
 When – The period covered by the work sheet
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SECTION 8.1
Preparing the Work Sheet
The Account Name Section
This section contains a listing of all accounts from the
general ledger. Include accounts with a zero balance to
avoid accidentally omitting an account.
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SECTION 8.1
Preparing the Work Sheet
The Account Name Section
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SECTION 8.1
Preparing the Work Sheet
The Trial Balance Section
The Trial Balance section contains each account’s end-ofperiod balance from the general ledger. A line is drawn
through the normal balance column of accounts with a zero
balance.
There are two steps to follow after this section is complete:
 ruling the Trial Balance section
 totaling the Trial Balance section
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SECTION 8.1
Preparing the Work Sheet
The Trial Balance Section
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SECTION 8.1
Preparing the Work Sheet
Ruling the Trial Balance Section
Ruling means “drawing a line.” A single line is drawn under
the balance columns to indicate that the columns are ready
to be totaled.
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SECTION 8.1
Preparing the Work Sheet
Ruling the Trial Balance Section
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SECTION 8.1
Preparing the Work Sheet
Totaling the Trial Balance Section
A ledger is in balance if the total debits equal the total
credits. A double line is drawn under the totals to identify the
above numbers as totals.
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SECTION 8.1
Preparing the Work Sheet
Totaling the Trial Balance Section
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SECTION 8.1
Preparing the Work Sheet
Key Terms Review
 work sheet
A working paper used to collect information from
the ledger accounts for use in completing end-ofperiod activities.
 ruling
Drawing a line; a single rule (line) drawn under a
column of figures indicates that the entries above
the rule are to be added or subtracted. If an
amount is a total and no further processing is
needed, a double rule is drawn under it.
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Chapter 8, Section 2
Completing the Work Sheet
What Do You Think?
If a business has a net loss, what does this tell you
about the accounting equation?
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SECTION 8.2
Completing the Work Sheet
Main Idea
After completing the work sheet, you will know the net
income or net loss for the accounting period.
You Will Learn
 how amounts are entered in the work sheet
sections.
 how to calculate net income.
 how to enter totals.
 a summary of steps used to prepare a work
sheet.
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SECTION 8.2
Completing the Work Sheet
Key Terms
 matching principle
 net income
 net loss
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SECTION 8.2
Completing the Work Sheet
The Balance Sheet and Income Statement
Sections
There are two financial statements prepared at the end
of the accounting period:
 Balance Sheet
 Income Statement
These are organized on the work sheet.
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SECTION 8.2
Completing the Work Sheet
The Balance Sheet Section
In this section, amounts are transferred, or extended,
from the Trial Balance section for these account types:
 asset
 liability
 owner’s equity
Extend debit amounts to the Debit column and credit
amounts to the Credit column.
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SECTION 8.2
Completing the Work Sheet
The Income Statement Section
In this section, amounts are extended from the Trial
Balance section for these account types:
 revenue
 expense
Extend revenue accounts to the Credit column and the
expense balances to the Debit column.
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SECTION 8.2
Completing the Work Sheet
Totaling the Income Statement and
Balance Sheet Sections
A single line is drawn below the entries in the Income
Statement and Balance Sheet sections to indicate they
are ready for totaling. Once the columns are totaled,
they will not be equal until the net income or net loss is
added.
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SECTION 8.2
Completing the Work Sheet
Totaling the Income Statement and
Balance Sheet Sections
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SECTION 8.2
Completing the Work Sheet
Showing Net Income or Net Loss on the
Work Sheet
Matching expenses with revenue in the same period will
provide a measure of profit. The results of this
matching principle are used by managers for:
 analyzing results.
 making decisions.
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SECTION 8.2
Completing the Work Sheet
Showing Net Income or Net Loss on the Work Sheet
To find the net income on net loss, subtract the total
expenses from the total revenues. There are three steps to
show net income or net loss on the work sheet:
A - After the last account, skip a line and enter the words
Net Income or Net Loss in the Account Name column.
B - On the same line, enter the net income total under
the Income Statement Debit column or the net loss
under the Credit column.
C - On the same line, enter the net income amount under
the Balance Sheet Credit column or the net loss under
the Debit column.
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SECTION 8.2
Completing the Work Sheet
Showing Net Income on the Work Sheet
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SECTION 8.2
Completing the Work Sheet
Completing the Work Sheet
D - Draw a single rule across the four Income Statement
and Balance Sheet columns below net income.
E - Bring down the Income Statement Debit and Credit
column totals (after adding net income or net loss).
F - Bring down the Balance Sheet Debit and Credit
column totals (after adding net income or net loss).
G - Draw a double rule under the four Balance Sheet
and Income Statement totals.
Total debits should equal total credits.
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SECTION 8.2
Completing the Work Sheet
Showing
net income
Showing
net loss
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SECTION 8.2
Completing the Work Sheet
A Review of the Steps in Preparing a
Six-Column Work Sheet
There are eight steps to preparing a six-column work
sheet:
 Enter the heading.
 Enter account numbers, names, and balances.
 Show that Trial Balance debits and credits are
equal.
 Transfer the Trial Balance values to the Income
Statement and Balance Sheet sections.
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SECTION 8.2
Completing the Work Sheet
A Review of the Steps in Preparing a
Six-Column Work Sheet
 Total the Income Statement and Balance Sheet
columns.
 Determine the net income or net loss.
 Enter the net income or net loss in the Income
Statement and Balance Sheet columns.
 Total and rule the four columns.
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SECTION 8.2
Completing the Work Sheet
Key Terms Review
 matching principle
Principle requiring that the expenses incurred in
an accounting period are matched with revenue
earned in the same period.
 net income
The amount by which total revenue exceeds total
expenses for the accounting period.
 net loss
The amount by which total expenses exceed total
revenue for the accounting period.
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CHAPTER 8
Chapter 8 Review
Question 1
List the steps involved in completing a six-column work
sheet.
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CHAPTER 8
Chapter 8 Review
Answer 1
Step 1: Write the heading on the work sheet.
Step 2: Enter the account numbers, names, and balances
for all general ledger accounts in the Account Name
and Trial Balance sections.
Step 3: Prove the equality of the Trial Balance total debits
and credits.
Step 4: Extend the amounts of the Trial Balance section to
the appropriate columns of the Balance Sheet and
Income Statement sections.
(continued)
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CHAPTER 8
Chapter 8 Review
Answer 1
Step 5: Total the columns in the Income Statement and
Balance Sheet sections.
Step 6: Determine the amount of the net income or net loss
for the period.
Step 7: Enter the net income or net loss amount in the
appropriate columns of the Income Statement and
Balance Sheet sections.
Step 8: Total and rule the Income Statement and Balance
Sheet sections.
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CHAPTER 8
Chapter 8 Review
Question 2
Why are the Balance Sheet columns not equal for a
business that has net income?
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CHAPTER 8
Chapter 8 Review
Answer 2
The Trial Balance will be equal, but when the revenue
and expense items (temporary capital accounts) are
separated from the Balance Sheet accounts, the Income
Statement and Balance Sheet columns will be out of
balance by the same amount. This happens because
revenues increase and expenses decrease the owner’s
equity account (capital). Net income occurs when
revenue exceeds expenses. Therefore, the capital
account will be out of balance by the amount of the
net income.
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