Accounting Chapter 8
Work Sheets for a Service Business
Terms and Concepts:
- Consistent Reporting: the practice of applying the same accounting procedures every accounting period.
(see Page 152)
- Fiscal Period: the length of time for which a business summarizes and reports financial information; usually 12 months
Worksheets are columnar accounting forms used to summarize the general ledger information.
Accountants use worksheets to:
- Fiscal year (or calendar year): any consectutive 12 months
- Natural business year: a fiscal year that ends during a business's slowest period
Trail Balance: a proof that general ledger (GL) debits and credits balance
Adjustments: changes to GL accounts at the end of a fiscal period. Asset and expense accounts are adjusted for assets that have been used to match revenue with expenses. For example:
- summarize GL account balances and prove debits equal credit
- plan changes to GL accounts to bring balances up to date (adjustments)
- separate GL account balances by financial statement (balance sheet, income statement)
- calculate net income and net loss for a fiscal period
Income Statement: a financial statement showing revenue and expenses.
- If you pay for insurance annually (once each year), at the end of each month 1/12 of the annual amount should be subtracted from Prepaid Insurance (asset account) and added to Insurance Expense (reducing owner's equity).
- If you purchase 3 months worth of material for $300 in June, at the end of June, July, and August you would adjust to subtract 1/3, or $100, from Supplies and add the $100 to Supplies Expense (reducing owner's equity).
Remember, the ending balance of the asset account Supplies should represent the actual amount of supplies on hand at the end of the fiscal period.
- Net Income:revenue is greater than expenses
- Net Loss:expenses are greater than revenue
Read pages 154, 156-7, 160
- Write the heading
For Month Ended Month, Day Year
- Record the trial balance.
- List each GL account title in the Account Title column.
- Write the account balances in the Trial Balance debit and credit columns.
- Prove and rule the Trial Balance debit and credit columns.
- Record adjustments.
- Debit expense accounts and credit asset accounts in the Adjustment columns.
- Label each adjustmenting debit and corresponding credit starting with (a), (b), etc..
- Prove and rule the Adjustment columns.
- Extend Balance Sheet accounts (assets, liabilities, and owner's equity) to the Balance Sheet debit and credit columns.
- Extend Income Statement accounts (revenue and expenses) to the Income Statement debit and credit columns.
- Calculate net income or loss.
- Rule and total Income Statement debit and credit columns.
- Subtract the Income Statement debit column (expenses) from the Income Statement credit column (revenue).
- A positive number indicates a net income.
- A negative number indicates a net loss.
- Record net income or loss.
- Net income:
- Write "Net Income" in the Account Title column of the worksheet.
- Write the net income amount in:
- the Income Statement debit column (to balance the Income Statement totals) and
- the Balance Sheet credit column (as you would increase owner's equity).
- Net loss:
- Write "Net Loss" in the Account Title column of the worksheet.
- Write the net loss amount in:
- the Income Statement credit column and
- the Balance Sheet debit column.
- Prove and rule the Income Statement and Balance Sheet columns.