worksheet
a form used to gather all data needed at the end of an accounting period to prepare financial statements
- includes 5 sections
1. trial balance
2. adjustments
3. adjusted trial balance
4. income statemenet
5. balance sheet
4th Step of Accounting Cycle
Preparing the Worksheet
Trial Balance Section
- enter general ledger account names
- transfer general ledger accounts balances to the debit and credit columns of trial balance section
- total the debit and credit columns to prove that the trial balance is in balance
- place a double rule under each trial balance column to show the work is complete
The adjustments section
prepare adjustments for unrecorded business transactions
adjusting entries
journal entries made to update accounts for items that were not recorded during the accounting period
Adjusting for Supplies Used
Nov 28, purchased $1500 supplies
Dec 31 trail balance shows $1500
Balance high because supplies were used
$500 worth of supplies were used
Adjustment made to reduce Supplies by $500 and increase Supplies Expense by $500
PrePaid Expenses
Expense items acquired, recorded, and paid for in advance of their use
Ex: Supplies, prepaid rent, prepaid insurance, prepaid advertising (all assets)
When prepaid expenses are used, an adjustment is made to reduce the asset account and to increase the related expense account
Adjusting for Expired Rent
Nov 30: Paid $8K for Dec and Jan Rent
Dec 31: Prepaid rent should decrease by rent amount used ($4k)
Rent Expense increased by 4K and prepaid rent decreased by 4K
Adjusting for Depreciation
- Long term assets are not recorded as expense when purchased
- As the cost of equipment is gradually transferred to expense, its recorded value as an asset must be reduced
- Accounting requires the original cost of a long term asset continue to appear in the asset account until the firm has used up or disposed of the asset
- Adjustment for depreciation is recorded in a contra account entitled “Accumulated Depreciation - Equipment”
- Depreciation Expense - Eq is increased by $183 and contra account Accum. Depr. Eq is increased by $183
Depreciation
allocation of the cost of a long term asset to operations during its expected useful life
- calculated on all long term tangible assets EXCEPT Land
straight-line depreciation
allocation of an assets cost in equal amounts to each accounting period of the assets useful life
Depreciation = (Cost - Salvage Value)/Estimated useful life
Ex: Purchased $11K of equipment. Estimated life of 5 years and no salvage value. (11k - 0)/60 months(5 years) = $183
1. Cover assets life from years to months
2. Divide total depreciation to be taken by the total number of months
3. Record depreciation expense of $183 for the next 60 months
Salvage Value
an estimate of the amount that could be received by selling or disposing of an asset at the end of its useful life
Contra Account
- an account with a normal balance that is opposite that of a related account
- Ex: Accumulated Depreciation
Ex: the Equipment account is an asset and has a normal debit balance. ‘Accumulated Depreciation - Equipment’ is a contra asset account with a normal credit balance - Adjustment to reflect depreciation for Dec is a $183 debit to depreciation expense - equipment and $183 credit to Acc. Dep. Eq
contra asset account
an asset account with a credit balance, which is contrary to the normal balance of an asset account
Book Value
-the portion of an asset’s original cost that has not yet been depreciated
-the difference between Accum Depr. Eq account and Equipment account
The Adjusted Trial Balance Section (ATB)
- Combine the figures from the Trial Balance section and the Adjustments section of the worksheet. Record computed results in the ATB columns
- Total Debit and Credit columns in the ATB. Confirm debits equal credits
- Accounts that do not have adjustments are simply extended from the Trial Balance section to the ATB section
Guidelines to compute the amounts for the ATB sections
- If account has a debit balance in the TB and a debit entry in the Adjustments section, add the two amounts
- If the account has a debit balance in the TB and a credit entry in the Adjustments, subtract the credit amount
- If account has a credit balance in the TB and a credit entry in the Adjustments, add the two amounts
- If the account has a credit balance in the TB and a debit entry in the Adjustments, subtract the debit amount
Four accounts with zero balances in TB are affected by adjustments
- Accum. Depr. - Equip.
- Supplies Exp.
- Rent Exp.
- Depreciation Exp. - Equip
- Balances in Adjustment section are simply extended to ATB
Income Statement and Balance Sheet Sections
- used to separate the amounts needed for the BS and IS
- Revenue and Expenses go in IS
- Assets, Liability, Equity go in BS
Balance Sheet Section
-Asset, liability, equity, drawing/capital accounts
-Accum Dep. -Eq is a contra account. Extend it to credit column
Income Statement Section
- Revenue and Expenses
- subtract smaller column from larger column
- Enter difference on the line below smaller total
- Credit column total = Revenue
- Debit column total = Expenses
- In BS, subtract smaller column from larger one, the difference should equal the net income/loss computed on the Income Statement Section
5th Step of Accounting Cycle
Preparation of the financial statements
Preparing Statement of Owner’s Equity
- From Balance Sheet: use owners capital, withdrawals, and if any investments
- From Income Statement: use amount calculated for net income/net loss
Market Value
what a willing buyer will pay for the asset.
(Book Value is the portion of the original cost that has not been depreciated)
