A WORKSHEET FOR A
SERVICE BUSINESS
Accounting – Chapter 6
WHAT IS THE PURPOSE OF AN
ACCOUNTING WORKSHEET?
An accounting worksheet is a tool that businesses
use to balance and close out their books at the end
of a period. An accounting worksheet lists all the
balances of each account a business has, with
adjusting and closing entries made to these
balances. When a worksheet is complete, the
company prepares financial statements from them.
CONCEPT: CONSISTENT REPORTING
 The application of the same accounting procedures for each
accounting period.
 Why is this important?
 Comparison
 Accuracy
FISCAL PERIOD
The length of time for which a business
summarizes and reports its financial information
CONCEPT: Accounting Period Cycle
Changes in financial information are reported
for a specific period of time in the form of
financial statements
DETERMINING THE FISCAL PERIOD
There is no set rule about the length of a
company’s fiscal period
How often do you want to report financial
information?
Problems if the cycle is too long
Problems if the cycle is too short
Analysis can be conducted at anytime
Aided by computer based accounting programs
SETTING THE START DATE
 Considerations for starting a fiscal period
 Often follows the calendar year
 Must be done at least once a year
 Preparation of financial statements takes time
 Examine business activity
 Is it better to start/end your fiscal period at a busy or
a slow time in a company’s business cycle?
 Sole proprietorship income is personal income
 Tax considerations
WORK SHEET
 A columnar accounting form used to summarize general
ledger information needed to prepare financial statements
 Summarize general ledger balances to prove that debits
equal credits
 Plan needed changes to general ledger accounts to bring
account balances up to date
 Separate general ledger balances according to the
financial statements to be prepared
 Calculate the amount of net income/loss for the period
WORK SHEET BASICS
 The Work Sheet is a planning tool
 Must be prepared in pencil
 Heading
 Three lines
Name of Company
2. Name of Report
3. Date of Report
1. For the ____ended _____
1.
THE TRIAL BALANCE
A proof of the equality of debits and credits in a
general ledger
If quality records are kept, the general ledger is all
that is needed to prepare the trial balance
The general journal and source documents might
be required if errors are discovered
Errors are found when the trial balance doesn’t
result in debits equaling credits
PREPARING THE TRIAL BALANCE
(PG. 154)
 Write the heading on the worksheet
 Write the general ledger account (in order of account
number) debit balances in the Trial Balance Debit column
 Write the general ledger account credit balances in the Trial
Balance Credit column
 Accounts with no balances are included, but no amounts are
entered in the Trial Balance Columns (Income Summary,
Supplies Expense and Insurance Expense)
PREPARING THE TRIAL BALANCE
(CONT’D)
(PG. 154)
 Rule a single line across the two Trial Balance columns
below the last line on which an account title is written
 Shows that each column is to be added
 Add the Trial Balance Debit and the Trial Balance Credit
columns.
 If they are the same, then they are in balance
 If not, recheck your math to locate the error
 The remainder of the worksheet cannot be
completed until the Trial Balance columns are proved
PREPARING THE TRIAL BALANCE
(CONT’D)
(PG. 154)
Write each column’s total below the single ruled
line
Rule double lines across both Trial Balance
columns. The double lines mean that the Trial
Balance column totals have been verified as correct
Stop – Section 6-1
ACCOUNTING CONCEPT
Matching Expenses with Revenue
Revenue from business activities and expenses
associated with earning that revenue are
recorded in the same accounting period
Provides accuracy in reporting
Provides information about level of expenses
required to generate level of revenue
ADJUSTMENTS
 Changes recorded on a work sheet to update ledger
accounts at the end of a fiscal period
 Enables a company to apply the Matching Revenue with
Expenses concept
 Brings the general ledger accounts up to date
 What is the value of supplies used during a specific
period?
 Transform from assets to expenses
 How much prepaid insurance was consumed during a
specific period?
 Any others?
ADJUSTMENT BASICS
Adjustments are recorded on the worksheet
Changes are not made in general ledger
accounts until adjustments are journalized
and posted (chapter 8)
Must check for accuracy first!
ADJUSTMENT TO SUPPLIES (PG 158)
 Determine the actual supplies balance at the end of the
fiscal period (HOW?)
 The amount of the adjustment is the Account balance minus
the actual balance
 Supplies must be credited (reduced) by the amount of the
adjustment
 Supplies Expense is debited by the amount of the
adjustment (the amount used)
ADJUSTMENT TO SUPPLIES (PG 158)
Write the adjustment amount in the Adjustments
debit column for Supplies Expense
Write the adjustment amount in the Adjustments
credit column for Supplies
Label the two parts of this adjustment with (a) to
identify the two amounts are part of the same
adjustment
ADJUSTMENT TO PREPAID INSURANCE
(PG 159)
Determine the actual prepaid insurance balance at
the end of the fiscal period (HOW?)
The amount of the adjustment is the Account
balance minus the actual balance
Prepaid Insurance must be credited (reduced) by
the amount of the adjustment
Insurance Expense is debited by the amount of the
adjustment (the amount used)
ADJUSTMENT TO PREPAID INSURANCE
(PG 159)
Write the adjustment amount in the Adjustments
debit column for Insurance Expense
Write the adjustment amount in the Adjustments
credit column for Prepaid Insurance
Label the two parts of this adjustment with (b) to
identify the two amounts are part of the same
adjustment
PROVING ADJUSTMENTS
 Once all adjustments have been entered the equality of the debits and
credits must be proved
 Rule a single line across the two Adjustment Columns on the same
line as the single line for the Trial Balance columns
 Add both the Adjustment columns
 If they are equal, rule a double line across both totals to indicate
that the equality has been verified
 If not, locate and correct the error
A QUICK REVIEW
 CONCEPT: Consistent Reporting
 Accuracy and comparison
 CONCEPT: Accounting Period Cycle
 Changes in financial information are reported for a
specific period of time in the form of financial
statements aka Fiscal Period
 Timing of the Fiscal Period
A QUICK REVIEW (CONT’D)
 Work Sheet
 Planning tool prepared in pencil
 Trial Balance
 List all accounts in the first column
 Record debit and credit balances from the General Ledger in the
Trial Balance columns
 Prove debits = credits by totaling the two Trial Balance Columns
 Rule a double line to indicate proof is verified
A QUICK REVIEW (YES, THERE’S MORE)
 CONCEPT: Matching Revenue with Expenses
 Revenue from business activities and expenses
associated with earning that revenue are recorded in the
same accounting period
 Adjustments to specific asset accounts are required to apply
this CONCEPT and to update General Ledger balances
 Transform assets to expenses
 Supplies and Prepaid Insurance
A QUICK REVIEW
Adjustments are made in the second set of
columns of the worksheet
Actual levels of supplies and prepaid insurance are
determined
The actual levels of these assets are subtracted
from the General Ledger account balances to
determine the amount of adjustment
LAST REVIEW SLIDE (REALLY)
Adjustments are entered as CREDITS to the asset
accounts and DEBITS to the corresponding expense
accounts
Small letters in parentheses are included to help
match the entries
The adjustment columns are proved by totaling each
column at the same point as the Trial Balance
Proof of debits = credits is verified by ruling a double
line under the totals
ACCOUNTING CONCEPT
 Accounting Period Cycle
 Financial statements are prepared at the end of the
accounting period cycle
 Can be weekly, monthly, quarterly or annually
 A company can prepare statements at any time
 SEC requires publically traded corporations to
publish financial statements quarterly (10-Q) and
annually (10K)
 What is the benefit of preparing financial statements?
BALANCE SHEET
A financial statement that reports the assets,
liabilities and owner’s equity on a specific date
Snap shot in time
Balance sheet account balances are extended to
the Balance Sheet Debit and Credit columns of the
Work Sheet
The balance for Supplies and Prepaid Insurance are
reduced by the credits in the adjustment columns
INCOME STATEMENT
A financial statement showing the revenue and
expenses for a fiscal period
Statement of flow
Up to date balances for income statement
accounts are extended to the Income Statement
Debit and Credit columns of the worksheet
Supplies Expense and Insurance Expense are
included
NET INCOME/LOSS
Total revenue – total expenses equals net income
or loss for the fiscal period
If revenue>expenses, then Net Income
If revenue<expenses, then Net Loss
Net Income/Loss must be calculated before the
Work Sheet can be balanced and ruled
CALCULATING NET INCOME/LOSS
Rule a single line across the Income Stmt and
Balance Sheet Columns
Total the columns and record the totals below the
single line
Subtract total debits from total credits in the
Income Statement columns (Revenue – Expenses)
RECORDING NET INCOME/LOSS
 If the result is greater than zero, record the net income below
the total in the debit column
 If the result is less than zero, record the net loss below the
total in the credit
 Extend the entry to the balance sheet item
 Net Income is recorded as a Credit (why?)
 Net Loss is recorded as a Debit (why?)
 Rule a single line below the four columns
 Total the columns and rule a double line to indicate proof that
debits = credits
CORRECTING ERRORS ON THE WORK
SHEET
 Errors are often detected only during the preparation of
the Work Sheet
 How do you know there is an error?
 Errors on the Work Sheet must be corrected before
financial statements can be prepared
 It is best to correct all mistakes in the Trial Balance
before moving any further
 Then, any additional errors occur on the Work Sheet
alone
TYPICAL CALCULATION ERRORS
 The difference is 1 ($.01, $.1, etc.)
 Math error – Redo calculations
 The difference is divisible by 2
 Look for the amount in the trial balance column, it is
likely that an item was entered in the wrong column
 The difference is divisible by 9
 A slide occurs when numbers are moved one decimal
place to the left or right ($25 becomes ($250)
TYPICAL CALCULATION ERRORS
The difference is an omitted amount
Look for an amount equal to the
difference
Often, that item has not been extended to
the Work Sheet’s Trial Balance
How do you prevent errors?
CHECKING FOR ERRORS IN THE WORK
SHEET
Check for errors in the Trial Balance Column
Have all General Ledger account balances been
entered and in the correct columns
Check for errors in the Adjustment Columns
Check for errors in the Income Statement and
Balance Sheet columns
CORRECTING AN ERROR IN POSTING TO
THE WRONG ACCOUNT
Draw a line through the entire incorrect entry
Recalculate the account balance and correct the
work sheet
Record the posting in the correct account
Recalculate the account balance and correct the
work sheet
CORRECTING AN INCORRECT AMOUNT
IN THE GENERAL LEDGER
Draw a line through the incorrect amount
Write the correct amount just aboive the
correction in the same space
Recalculate the account balance and correct
the balance on the work sheet
CORRECTING AN AMOUNT POSTED
TO THE WRONG COLUMN
Draw a line through the incorrect item in
the account
Record the posting in the correct amount
column
Recalculate the balance
Correct the Work Sheet