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Chapter 6.1

Chapter 6.1. Worksheet for a Service Business. WARM UP. In your Textbook, check out page 151 and read the accounting in the Real World section and answer the two Critical Thinking Questions that follow.

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Chapter 6.1

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  1. Chapter 6.1 Worksheet for a Service Business

  2. WARM UP • In your Textbook, check out page 151 and read the accounting in the Real World section and answer the two Critical Thinking Questions that follow. • Once finished, do the Internet Activity Exercise on the same page and follow the instructions given. • These will be turned in at the end of class.

  3. Objectives for Chapter 6 • Chapter 6 Introduces the 8- Column work sheet. • In order to complete a work sheet, adjustments must be made. • Chapter 6 describes two simple adjustments for a proprietorship-supplies and prepaid insurance.

  4. Agenda Monday November 28, 2011

  5. Objectives for Chapter 6.1 • 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. • Prepare a heading and a trial balance on a work sheet

  6. Consistent Reporting • Very Important! • Without consistent reporting, it would be very difficult to compare results from year to year.

  7. Question for YOU! • Can you think of any way to test to see if debit equal credits after all posting is complete? • -If Debits equal Credits for each transaction, total debits should equal total credits. This leads to a listing of each account and its balance-a trial balance.

  8. Terminology • fiscal period-the length of time for which a business summarizes and reports financial information. (p. 152) • work sheet-a columnar accounting form used to summarize the general ledger information needed to prepare financial statements. (p. 153) • trial balance-a proof of the equality of debits and credits in a general ledger. (p. 154)

  9. Explanation • Reporting accounting information for a fiscal period is very important…Why???????? • A fiscal period can begin on any date. However, most businesses begin their fiscal periods on the first day of a month.

  10. LESSON 6-1 Creating a Worksheet

  11. PREPARING THE HEADING OF A WORK SHEET 1 Name of Company 2 Name of Report 3 Date of Report page 153 A WORK SHEET IS A PLANNING DOCUMENT LESSON 6-1

  12. PREPARING THE HEADING OF A WORK SHEET page 153 ALL FINANCIAL STATEMENT HEADINGS ANSWER THE QUESTIONS: WHO? WHAT? AND WHEN? A WORK SHEET IS A PLANNING DOCUMENT LESSON 6-1

  13. PREPARING A TRIAL BALANCE ON A WORK SHEET • ALL ACCOUNTS ARE LISTED IN CHART OF ACCOUNTS ORDER ON A WORK SHEET WHETHER THEY HAVE A BALANCE OR NOT. • ACCOUNT TITLES ARE WRITTEN IN FULL UNLESS THERE IS NOT ENOUGH ROOM. IF THERE IS NOT ENOUGH ROOM, ABBREVIATIONS CAN BE USED • ACCURACY IS IMPORTANT WHEN COPYING ACCOUNT BALANCES TO THE WORK SHEET COLUMNS

  14. PREPARING A TRIAL BALANCE ON A WORK SHEET 2 1 4 3 5 6 page 154 1. Write the general ledger account titles. 2. Write the general ledger debit account balances. Write the general ledger credit account balances. 3. Rule a single line across the two Trial Balance columns. 4. Add both the Trial Balance Debit and Credit columns. 5. Write each column’s total below the single line. 6. Rule double lines across both Trial Balance columns. LESSON 6-1

  15. TERMS REVIEW • fiscal period-the length of time for which a business summarizes and reports financial information. (p. 152) • work sheet-a columnar accounting form used to summarize the general ledger information needed to prepare financial statements. (p. 153) • trial balance-a proof of the equality of debits and credits in a general ledger. (p. 154) page 155 LESSON 6-1

  16. APLIA 6.1 • Work Together and On Your Own • Application Problem • Character Counts Page 153

  17. EXIT TICKET • WHAT IS WRITTEN ON THE THREE-LINE HEADING ON A WORK SHEET? • WHAT GENERAL LEDGER ACCOUNTS ARE LISTED IN THE TRIAL BALANCE COLUMNS ON A WORK SHEET?

  18. LESSON 6-2 Planning Adjusting Entries on a Work Sheet

  19. 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. • Plan Adjustments for supplies and prepaid insurance.

  20. Question for YOU! • How have we accounted for supplies up to this point? • Answer: We have increased the asset account, Supplies, when we purchase supplies. • We have NOT recorded the use of supplies. Today we will stress that if this continues, the balance in the supplies account will get larger and larger, even though supplies are being used each period.

  21. New VOCAB TERM • ADJUSTMENTS: changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period. (p. 157) • Today’s lesson will discuss how to analyze adjustments for supplies and prepaid insurance. • Don’t look too excited!

  22. Lesson 6.2 • The concept Matching Expenses with Revenue means that amounts that helped earn revenue for a period must be reported as expenses in the same period. • Again, Today we are going to look how adjustments are made for supplies and insurance. • These adjustments will be planned on the work sheet.

  23. Example (Supplies) • A Company starts the accounting period with two boxes of envelopes • Three additional boxes are purchased during the period. If the company uses four boxes of envelopes, the matching concept requires that the cost of the four boxes to be included with expenses for the period. The cost of the one remaining box must be listed as an asset, Supplies.

  24. Good Habits • You should establish the habit of asking the four questions to analyze each adjustment. • What is the balance of Supplies? • What should the balance be for this account? • What must be done to connect the account balance? • What adjustment is made?

  25. Good Habits • The amount of the adjustment is the amount of supplies used. • This amount will also be the balance of Supplies Expense after the adjusting entry. • After the adjusting entry, the balance in the asset account, Supplies, is the cost of the supplies still on hand. • There are Three Steps for a Supplies Adjustment on a work sheet

  26. SUPPLIES ADJUSTMENT ON A WORK SHEET 3 page 158 2 1 1. Write the debit amount. 2. Write the credit amount. 3. Label the two parts of this adjustment. LESSON 6-2

  27. SUPPLIES ADJUSTMENT ON A WORK SHEET Supplies Account Balance – Supplies on Hand= Supplies Used $1025.00 - $310.00 = $715.00

  28. PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET 3 page 159 2 1 1. Write the debit amount. 2. Write the credit amount. 3. Label the two parts of this adjustment. LESSON 6-2

  29. PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET Prepaid Insurance Balance – Insurance Coverage Remaining (Unused) = Insurance Coverage Used $1200.00 - $1100.00 = $100.00

  30. PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET • Reminder: If Debits equal Credits for each adjustment, the total debits and total credits in the Adjustments columns must also equal. • There are three steps for proving the Adjustments columns of a work sheet….

  31. PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET 1 2 3 page 160 1. Rule a single line. 2. Add both the Adjustments Debit and Credit columns. Write each column’s total. 3. Rule double lines. LESSON 6-2

  32. PREPARING A WORK SHEET page 160 C 1. Write the heading. 2. Record the trial balance. 3. Record the supplies adjustment. 4. Record the prepaid insurance adjustment. 5. Prove the Adjustments columns. 6. Extend all balance sheet account balances. 7. Extend all income statement account balances. 8. Calculate and record the net income (or net loss). 9. Total and rule the Income Statement and Balance Sheet columns. LESSON 6-2

  33. LESSON 6-2

  34. 1 LESSON 6-2

  35. 496400 10000 15000 496400 10000 15000 6 10000 102500 120000 10000 31000 110000 (a) 71500 (b) 10000 20000 5000 500000 20000 5000 500000 3 62500 4 62500 356500 356500 21300 21300 (b) 10000 10000 2800 30000 7 2800 30000 (a) 71500 5 71500 11000 11000 8 9 1 2 881500 881500 81500 81500 146600 356500 734900 525000 Net Income 209900 209900 356500 356500 734900 734900 LESSON 6-2

  36. TERM REVIEW • Adjustments- changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period. (p. 157) page 161 LESSON 6-2

  37. Global Perspective • Check out page 160 and answer the two critical thinking questions listed. • You may use the internet to research your answers.

  38. EXIT TICKET • Write a short paragraph on why adjustments are necessary. When done, share your answer with another student and turn it in.

  39. LESSON 6-3 Extending Financial Statement Information on a Work Sheet

  40. 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

  41. 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 LESSON 6-2

  42. 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

  43. 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.

  44. EXTENDING BALANCE SHEET ACCOUNT BALANCES ON A WORK SHEET 2 1 3 page 162 1. Debit balances without adjustments 2. Debit balances with adjustments 3. Credit balances without adjustments LESSON 6-3

  45. 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.

  46. 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.

  47. EXTENDING INCOME STATEMENT ACCOUNT BALANCES ON A WORK SHEET 1 2 3 page 163 1. Sales balance 2. Expense balances without adjustments 3. Expense balances with adjustments LESSON 6-3

  48. 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.

  49. RECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEET 4 2 1 5 3 6 7 page 164 1. Single rule 2. Totals 4. Extend net income 6. Totals 3. Net income 5. Single rule 7. Double rule LESSON 6-3

  50. 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.

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