Steps in Preparing the Worksheet

(1)

Steps in

Steps in Preparing the Wo

Preparing the Worksheet:

rksheet:

In smaller companies the adjustments are usually entered

In smaller companies the adjustments are usually entered directly in the journal and posted directly in the journal and posted to theto the

ledger, and the financial statements are prepared directly from the adjusted trial balance. For larger

companies, however, w

companies, however, which may require many adjusting entries, ahich may require many adjusting entries, a worksheetworksheetis essential. The workis essential. The work

sheet is identified by a

sheet is identified by a heading that consists of the heading that consists of the name of the company, the title "ork !heet", and thename of the company, the title "ork !heet", and the

period of time covered as on the income statement#.

period of time covered as on the income statement#.There are five steps in the preparation of aThere are five steps in the preparation of a work sheet,

work sheet, as shown below$ as shown below$

(i) Entering the Account Balances in the

(i) Entering the Account Balances in the Trial Balance Column:Trial Balance Column:

The titles and balances of

The titles and balances of the accounts are copied directly from the the accounts are copied directly from the ledger into the trial balanceledger into the trial balance

columns. hen a work sheet

columns. hen a work sheet is prepared, a separate trial balance in is prepared, a separate trial balance in not required. %owever, if it hasnot required. %owever, if it has

been prepared, the balances may be posted from it in the work sheet.

(ii) Entering the Adjustments in

(ii) Entering the Adjustments in the Adjustment Columns:the Adjustment Columns:

&djustments

&djustmentshave been already e'plained. The same have been already e'plained. The same adjustments are enteredin the adjustmentadjustments are enteredin the adjustment

columns of the work sheet

columns of the work sheet as shown in earlier e'ample. &s each adjustment is entered, a as shown in earlier e'ample. &s each adjustment is entered, a letter is usedletter is used

to identify the debit and

to identify the debit and credit parts of the same credit parts of the same entry. Ientry. In practice, this letter may be n practice, this letter may be used to referenceused to reference

supporting computations or documentation underlying the

supporting computations or documentation underlying the adjusting entry. hen all the adjustmentsadjusting entry. hen all the adjustments

have been entered in relevant debit and credit columns, the pair of adjustments columns must be added.

This step proves that

This step proves thatthethedebits and credits of the adjustments are equal and generally reduces errordebits and credits of the adjustments are equal and generally reduces error

in

inthe preparation of the work sheet.the preparation of the work sheet.

(iii) Entering the Account Balances

(iii) Entering the Account Balances as Adjusted in the as Adjusted in the Adjusted Trial Balance Columns:Adjusted Trial Balance Columns:

The adjusted trial balance prepared by

The adjusted trial balance prepared by combining the amount of each combining the amount of each account in the original trialaccount in the original trial

balance columns with the corresponding amounts in theadjustment(s columns and

balance columns with the corresponding amounts in theadjustment(s columns and entering theentering the

combined amounts on a

combined amounts on a line by line basis in line by line basis in the adjusted trial balance columns. &djusted trial balancethe adjusted trial balance columns. &djusted trial balance

columns are then footed, that is

columns are then footed, that is totaled, to check the arithmetical accuracy of tile totaled, to check the arithmetical accuracy of tile cross footing just likecross footing just like

that of a normal trial balance.

!ome accountants prefer to eliminate the adjusted trial balance

!ome accountants prefer to eliminate the adjusted trial balance columnscolumnsand to e'tend the adjustedand to e'tend the adjusted

account balances directly to the appropriate statement column for

account balances directly to the appropriate statement column for ) to *+. ) to *+. !uch an alternative form of!uch an alternative form of

work sheet is especially popular if there are only a few items involved, it would then becalled a "en

-olumn ork !heet".

(iv) Extending the Account Balance from the Adjusted Trial Balance Column to the Profit &

(iv) Extending the Account Balance from the Adjusted Trial Balance Column to the Profit & LossLoss

Columns or the Balance heet Columns! (i"e" from column # and $ to column %

Columns or the Balance heet Columns! (i"e" from column # and $ to column % to '):to '):

very account in the adjusted trial balance is either a balance sheet account or an income statement

account. The accounts are sorted, and each

account. The accounts are sorted, and eachaccount is e'tended to its proper place as a debitaccount is e'tended to its proper place as a debitor creditor credit

either in the balance sheet

either in the balance sheet columns or in the trading columns or in the trading and profit / loss columns. The result of and profit / loss columns. The result of e'tendinge'tending

the accounts is shown in

the accounts is shown in e'ample0&#. 1evenue profits# and e'penses accountse'ample0&#. 1evenue profits# and e'penses accountsare moved to the profitare moved to the profit

/ loss columns.

/ loss columns. &ssets and liabil &ssets and liabilities as welt ities as welt as capital and dras capital and drawings accounts are tawings accounts are thenhene'tended to thee'tended to the

balance sheet columns. To

balance sheet columns. To avoid over looking an avoid over looking an account, e'tend the accounts line by account, e'tend the accounts line by line, beginningline, beginning

with the first line which is cash# and

with the first line which is cash# and not omitting any.not omitting any.

(v) Tot

(v) Totaling the ncome tatement aling the ncome tatement Columns and the Balance heet Columns and the Balance heet Columns" Enter the etColumns" Enter the et

ncome or et Loss in Both Pairs of Columns as a

ncome or et Loss in Both Pairs of Columns as a Balancing *igure! and +e,com-ute ColumnBalancing *igure! and +e,com-ute Column

Totals:

(2)

This last step as shown in e'ample0&# is necessary to compute net income or net loss and to prove the arithmetical accuracy of the work sheet. 2et income o r net loss is equal to the difference between the debit and credit columns of the income statement. In the illustrative e'ample0&#, the revenue has e'ceeded the e'penses. -onsequently, the company has a net p rofit of 345,676. This amount of

345,676 is entered in the debit side of the income statement 89! &:-# columns to balance the columns and it is entered on the credit side of the balance sheet columns. This is done because e'cess revenue net income# increases capital and increases in owner(s capital are recorded by credits. If a net loss had occurred, the opposite rule world apply.

Exam-le and its olution for the Pre-aration of .or/sheet:

Exam-le,(A):

0 & 1 Com-an2

The trial balance of ; / < -ompany, as on 76th_{une is given below$}

3 3 -ashinhand =>6 0 !undry debtors 4=666 0 ?iscount 766 0 ?rawings **666 0 @pening stock 76666 0 8urchases )5666 0 !ales returns +)66 0 Aiscellaneous trade e'penses )55 0 9aborwages 7566 0 !alaries 5=66 0 Traveling e'penses >56 0 &dvertising 566 0

1ent and insurance +>66 0 Interest and bank charges +*5 0

Baddebts 466 0

Buildings =666 0

8lant and machinery *6666 0

Furniture 5666 0 -apital 0 75666 8urchases returns 0 *766 !ales gross# 0 *+5666 -reditors 0 76666 Bank overdraft 0 *6666 Total 3'4544 3'4544 Following additional information is also available$

(3)

ii# -harge depreciation at *6C on a# 8lant and machinery b# Furniture. iii# Aake provision for bad and doubtful debts at 5C of sundry debtors. iv# 3*56 on account of insurance are prepaid.

+e6uired: 8repare$

a# Trading and 8 / 9 &ccount. b# Balance sheet as on 76th_une.

olution:

0 & 1 Com-an2

Trading! Profit & Loss Account *or the 2ear ended 54th_7une

@pening stock

8urchases )5666 9ess returns *766 2et 8urchase

9abor charges

Dross profit carried down#

76666 )7)66 7566 =6*66 !ales 9ess returns 2et sales -losing stock *+5666 +)66 *++766 45666 Total $%544 Total $%544 Ex-enses: ?iscount !alaries &dvertising insurance

Interest / bank charges Bad debts

?epreciation machinery# ?epreciation furniture# 8rovision for bad debts

Aiscellaneous trade e'penses Traveling e'penses

2et profit carried to balance !heet

766 5=66 566 +=56 +*5 466 *666 566 +766 )55 >56 45676 Dross profit B:d =6*66 $444 $444 0 & 1 Com-an2

Balance heet as on 54th_7une

Ca-ital and Lia8ilities Assets

-apital 75666 &dd$ 8rofit 45676 >6676 -ash in hand 8repaid insurance !undary ?ebtors =>6 *56

(4)

9ess$ ?rawings **666 -reditors Bank @verdraft =E676 76666 *6666 4=666 9ess$ 8rovision +766 !tocks 8lant / Aachinery *6666 9ess$ ?epreciation *666 Furniture 5666 9ess$ ?epreciation 566 Building 47)66 45666 E666 4566 =666 4945 4 49454 Exam-le,(B):

This solved problem illustrates the use of a work sheet where the columns of trading and profit / loss account has been substituted by Income !tatement column .

(5)

B &  ;eliver2 Com-an2

Additional ;ata:

a# Insurance e'pense for the month of ?ecember 3+66 b# 1ent e'pense for the month of ?ecember 3466 c# !upplies used during the month 3566

d# ?epreciation for ?ecember 356

e# @ne0third of the fees0received in advance account has been earned by 7*st_?ecember.

f# Interest earned but not yet received 3=66 g# nbilled service 3*666

h# &ccrued salaries 3*>6

B &  ;eliver2 Com-an2 .or/sheet as on 5st_;ecem8er

;e8it 3 Credit 3 -ash *6=56 &ccounts receivable =466 !uppliesonhand *466 8repaidinsurance +466 8repaidrent 46666 &ccounts payable 7*76

!erviceFeereceivedin advance 4566

-apitalstock 56666

?ividendsdrawings# 7666

!ervicerevenue *6)66

&dvertising e'penses 56

Das/oile'penses =>6

!alariese'penses 7=66

tilitiese'penses *56

(6)

Accoun t Title Trail Balance Adjust ments Adjuste d Trial Balance ncome tateme nt Balance heet ;r" Cr" ;r" Cr" ;r" Cr" ;r" Cr" ;r" Cr" -ash *6=56 *6=56 *6=56 &ccount receivable =466 =466 =466

!upplies on hand *466 566 E66 E66

8repaid insurance +466 +66 ++66 ++66

8repaid rent 46666 466 7E=66 7E=66

&ccount payable 7*76 7*76 7*76

!ervice fee received in advance 4566 *566 7666 7666 -apitalstock 56666 56666 56666 ?ividends drawings# 7666 7666 7666 !ervice revenue *6)66 +566 *7+66 *7+66 &dvertising e'penses 56 56 56

Dasandoile'penses =>6 =>6 =>6 !alariesG e'penses 7=66 *>6 7)>6 7)>6 tilities e'penses *56 *56 *56 Insurance e'pense +66 +66 +66 1ente'pense 466 466 466 !upplies e'pense 566 566 566 ?epreciation )56 )56 )56 &ccumulated ?epreciation )56 )56 )56 Interest receivable =66 =66 =66 Interest revenue =66 =66 =66 !alariespayable *>6 *>6 *>6 !ervice revenue receivable *666 *666 *666

2etprofit )+E6 )+E6

Total $<554 $<554 #54 #54 %4<$4 %4<$4 5<4 4