LESSON 6-3

Report
LESSON 6-3
Extending Financial Statement
Information
on a Work Sheet
Objectives
•Define Accounting terms related to a
work sheet for a services business
organization organized as a
proprietorship.
•Identify accounting concepts and
practices related to a work sheet for a
service business organized as a
proprietorship.
•Complete a Work Sheet for a service
business organized as a proprietorship
What kinds of accounts will be moved to the Balance
Sheet columns and what kinds of accounts will be
moved to the Income Statement Columns
3
New Terminology
Balance sheet: a financial statement that
reports assets, liabilities, and owner’s
equity on a specific date
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
Here we go!
When extending balances, assets,
liabilities and owner’s equity, they
always go in the Balance Sheet
Reminder!!!
The work sheet will be used to
prepare the balance sheet.
All accounts extended to the Balance
Sheet columns are at the top of the
work sheet, from Cash through the
owner’s drawing account.
EXTENDING BALANCE SHEET
ACCOUNT BALANCES ON A
page 162
WORK SHEET
2
1. Debit balances without adjustments
2. Debit balances with adjustments
3. Credit balances without adjustments
6
1
3
EXTENDING BALANCE SHEET
ACCOUNT BALANCES ON A
WORK SHEET
FYI…A work sheet is prepared in
manual accounting to adjust the
accounts and sort amounts needed to
prepare financial statements.
However, in automated accounting,
adjustments are prepared from the
trial balance, and the software
automatically generates the financial
statements with no need for a work
sheet.
Extending Income Statement
Account Balances
When extending balances, revenue and expenses
always go in the Income Statement columns.
REMINDER:
A worksheet will be used to prepare the income
statement.
There are three steps for extending income statement
account balances on a work sheet.
All accounts that are extended to the income statement
columns are at the bottom of the work sheet, from
Sales through the last Expense account.
EXTENDING INCOME STATEMENT
ACCOUNT BALANCES ON A WORK SHEET
page 163
1
2
3
1. Sales balance
2. Expense balances without adjustments
3. Expense balances with adjustments
9
RECORDING NET INCOME, AND
TOTALING AND RULING A
WORK SHEET
Remember Net Income?
Net Income: the difference between total revenue
and total expenses when total revenue is greater.
There are SEVEN (7) Steps for calculating and recording
net income on a work sheet and totaling and ruling a
work sheet.
RECORDING NET INCOME, AND
TOTALING AND RULING A WORK
page 164
SHEET
4
1. Single rule
2. Totals
3. Net income
11
3
4. Extend net income
5. Single rule
6
6. Totals
7. Double rule
1
7
2
5
CALCULATING AND
RECORDING A NET LOSS ON A
WORK SHEET
Remember Net Loss?
Net Loss: the difference between
total revenue and total expenses
when total expenses are greater
There are FOUR (4) Steps for
calculating and recording new loss on
a work sheet.
CALCULATING AND
RECORDING A NET LOSS ON A
page 165
WORK SHEET
1
3
1.
2.
3.
4.
13
Single rule
Totals
Net loss
Extend net loss
4
2
TERMS REVIEW
• balance sheet
• income statement
• net income
• net loss
14
page 166
Exit Ticket
• Which Accounts are extended into the
Balance Sheet columns of the work sheet?
• Which Accounts are extended into the
Income Statement columns of the work
sheet?
• In which Balance Sheet column do you
record net income on the work sheet?
• In which Balance Sheet column do you
record net loss on the work sheet?
EXIT TICKET Answers
•
Which Accounts are extended into the Balance Sheet
columns of the work sheet?
• Asset, Liability and Owner’s Equity accounts
•
Which Accounts are extended into the Income
Statement columns of the work sheet?
• Revenue and Expense accounts
•
In which Balance Sheet column do you record net
income on the work sheet?
• Balance Sheet Credit Column
•
In which Balance Sheet column do you record net
loss on the work sheet?
• Balance Sheet Debit Column.
LESSON 6-4
Finding and Correcting Errors on the Work
Sheet
Objectives
•Identify selected procedures
for finding and correcting
errors in accounting records.
What If ? ? ?
What might happen if the columns of a
work sheet do not equal?
Would you leave it and go on, or find
the error before going on?
Answer: Common errors may be
discovered while preparing a
worksheet.
Preview
•In this lesson, specific
procedures will be discussed
that will help find errors in
the accounting records.
Here we go!
• If errors are found while preparing the
work sheet, the errors must be corrected as
shown in this lesson.
• It is very important to work accurately and
prevent errors whenever possible.
• This lesson is designed to provide you with
some quick and effective ways of finding,
correcting, and preventing errors when
preparing a work sheet.
• Many of the suggestions provided today can
be applied while performing other types of
accounting and non accounting
calculations.
Checking for Typical
Calculation Errors
•When two column totals are
not in balance; subtract the
smaller total from the larger
total to find the difference.
Check the difference
between the two amounts
against the following four
guides.
Checking for Typical
Calculation Errors
There are four methods of finding errors
described on page 167.
1.The difference is 1
2.The difference can be divided
evenly by 2
3.The difference can be divided
evenly by 9
4.The difference is an omitted
account.
The Difference Is 1
• For example, if the totals of the
two columns are debit $14,657
and Credit $14658, the
difference between the two
columns is $1.00. The error is
most likely in addition.
• Add the columns again.
The Difference Can Be Divided
Evenly By 2
• For example, the difference between two
column totals is $48, which can be divided
by 2 with no remainder. Look for $24
amount in the Trial Balance columns of the
work sheet. If the amount is found, check
to make sure it has been recorded in the
correct Debit or Credit column.
The Difference Can Be Divided
Evenly By 2
• A $24 debit amount recorded in a credit
column results in a difference between
column totals of $48.
• If the error is not found on the work sheet,
check the general ledger accounts and
journal entries. An entry for $24 may have
been recorded in an incorrect column in the
journal or in an account.
The Difference Can Be Divided
Evenly by 9
• For example, the difference between two
columns is $45. which can be divided by 9
with no remainder. When the difference
can be divided equally by 9, look for
transposed numbers such as 54 or 19
written as 91.
• Also, check for a “Slide”. A “Slide” occurs
when numbers are moved to the right or
left in an amount column. For example, $12
is recorded as $120 or $350 is recorded as
$35.
The Difference Is An Omitted
Account.
Look for an amount equal to the difference. If the
difference is $50, look for an account balance of $50
that has not been extended.
Look for any $50 amount on the work sheet and
determine if it has been handled correctly.
Look in the accounts and journals for a $50 amount and
check if that amount has been handled correctly.
Failure to record a $50 account balance will make a
work sheet’s column totals differ by $50.
Checking For Errors in the Work
Sheet.
1.Check for Errors in the Trial
Balance Column
2.Check for Errors in the
Adjustment Columns
3.Check for Errors in the Income
Statement and Balance Sheet
Columns.
Check for Errors in the Trial
Balance Column
1.Have all general ledger
account balances been copied
in the trial balance column
correctly?
2.Have all general ledger
account balances been recorded
in the correct Trial Balance
Columns?
Check for Errors in the
Adjustment Columns
Do the Debits equal the Credits for
each adjustment?
Use the small letters that label each
part of an adjustment to help check
accuracy and equality of debits and
credits.
Is the amount for each adjustment
correct?
Check for Errors in the Income
Statement and Balance Sheet
Columns.
 Has each amount been copied correctly when
extended to the Income Statement or Balance Sheet
column?
 Has each account balance been extended to the
correct Income Statement or Balance Sheet
columns?
 Has the net income or net loss been recorded in the
correct Income Statement or Balance Sheet
columns?
 Has the net income or net loss been recorded in the
correct Income Statement or Balance Sheet
Columns.
POSTING TO THE WRONG
ACCOUNT
2
page 168
Correct entry
1
Incorrect entry
1. Draw a line through the entire incorrect entry. Recalculate the account
balance and correct the work sheet.
2. Record the posting in the correct account. Recalculate the account
balance, and correct the work sheet.
33
CORRECTING AN INCORRECT
AMOUNT
page 169
2
1
3
1. Draw a line through the incorrect amount.
2. Write the correct amount just above the correction in the same space.
3. Recalculate the account balance, and correct the account balance on
the work sheet.
3 Steps for correcting an incorrect amount in
the account.
34
CORRECTING AN AMOUNT
POSTED TO THE WRONG
COLUMN
2
1
3
5
4
6
4. Draw a line through the incorrect item in the account.
5. Record the posting in the correct amount column.
6. Recalculate the account balance, and correct the work sheet.
35
page 169
Check Your Understanding
• What is the first step in checking for
arithmetic errors when two column
totals are not in balance?
• What is the one way to check for an
error caused by transposed numbers?
• What term is used to describe an
error that occurs when numbers are
moved to the right or left in an
Amount Column.
Check Your Understanding
• What is the first step in checking for
arithmetic errors when two column
totals are not in balance?
• Subtract the smaller total from the
larger total to find the difference.
Check for Understanding.
What is the one way to check for
an error caused by transposed
numbers?
Answer- The difference between
the two column totals can be
divided evenly by 9.
Check for Understanding
•What term is used to
describe an error that occurs
when numbers are moved to
the right or left in an Amount
Column.
Answer: A slide
Aplia
• Work Together 6-4
•On Your own 6-4
•Application 6-4
•Chapter 6 Study Guide
•Century21accounting.com
Tutorial Test for
Chapter 6
Exit Ticket
•

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