Chapter 8 the six column work sheet
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Chapter 8 – The six-Column Work Sheet. May 16, 2012. What is the purpose of Accounting?. To make wise business decisions. Work Sheet. An informal business paper used to organize and plan the information for the financial statements.

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Work sheet
Work Sheet

  • An informal business paper used to organize and plan the information for the financial statements.




Control accounts
Control Accounts 6-column work sheet

  • Accounts used to represent the sum of individual accounts of the same type.

  • Example: Accounts Receivable control accounts is the sum of all the individual Accounts Receivables.


Steps for preparing a work sheet
Steps for Preparing a Work Sheet 6-column work sheet

  • Step 1 – Write in the heading.


Step 1
Step 1 6-column work sheet

  • The heading from left to right:

  • Company name

  • “Work Sheet”

  • Year Ended December 31, 20--


Steps for preparing a work sheet1
Steps for Preparing a Work Sheet 6-column work sheet

  • Step 1 – Write in the heading.

  • Step 2 – Enter all accounts with their balances in the first two columns under “Trial Balance.” Ensure it is in balance.


Steps for preparing a work sheet2
Steps for Preparing a Work Sheet 6-column work sheet

  • Step 1 – Write in the heading.

  • Step 2 – Enter all accounts with their balances in the first two columns under “Trial Balance.” Ensure it is in balance.

  • Step 3 - Extend the amounts to the corresponding columns on the right.


Step 3
Step 3 6-column work sheet

  • Assets and Liabilities go in the two farthest columns under “Balance sheet.”

  • Sales/Revenue and Expenses go to the middle columns under “Income Statement.”


Steps for preparing a work sheet3
Steps for Preparing a Work Sheet 6-column work sheet

  • Step 1 – Write in the heading.

  • Step 2 – Enter all accounts with their balances in the first two columns under “Trial Balance.” Ensure it is in balance.

  • Step 3 - Extend the amounts to the corresponding columns on the right.

  • Step 4 – Balance the worksheet


Step 4
Step 4 6-column work sheet

  • The income statement and Balance Sheet, alone, are not expected to balance

  • The difference between Sales/Revenue and Expenses represents the Net income/loss

  • The Net Income should also match the difference between assets and liabilities


Net income or net loss
Net Income 6-column work sheet or Net Loss 

  • Net Income: Sales/Revenue > Expenses

  • Represented as a Debit under the Income statement and a Credit under the Balance Sheet columns

  • Net Loss: Sales/Revenue < Expenses

  • Represented as a CR under the Income statement and a DR under the Balance Sheet columns


Test your knowledge

Test your knowledge 6-column work sheet



What is the purpose of accounting2
What is the purpose of Accounting? 6-column work sheet

  • To make wise business decisions



How do you tell if a company has made a profit or loss1
How do you tell if a company has made a profit or loss? 6-column work sheet

  • If Sales/Revenue is greater than expenses



What are the six steps of the accounting cycle learned so far1
What are the six steps of the accounting cycle learned so far?

  • Transactions occur

  • Transactions journalized

  • Journal entries posted to ledger

  • Trial Balance prepared

  • Worksheet prepared

  • Income statement and balance sheet prepared



Comparing income statements
Comparing Income Statements far?

  • Used to calculate the change as either a dollar amount($) or percentage (%)


Example
Example far?



Chapter 8 the six column work sheet

Accountants will use this analysis with several accounts and try to implement changes to make the company more profitable / efficient


Try it yourself
Try it yourself try to implement changes to make the company more profitable / efficient

2010 2011

Wages Expense $21,000 $39,000

Calculate both the dollar change and percentage change.


Try it yourself1
Try it yourself try to implement changes to make the company more profitable / efficient

2010 2011

Wages Expense $21,000 $39,000

Calculate both the dollar change and percentage change.

Dollar Change = 39,000-21,000 = 18,000

Percent Increase = 18,000/21,000 = 85.7%


Trend analysis
Trend Analysis try to implement changes to make the company more profitable / efficient

  • Shows financial data over a number of consecutive periods.


When looking at the final results only important information on variance is ignored

When looking at the final results only, important information on variance is ignored


How to compare companies of different sizes

How to compare companies of different sizes information on variance is ignored


Common size income statements
Common-Size Income Statements information on variance is ignored

  • Income statements of two companies compared side by side while expense accounts are shown as a percentage of sales.


Common size equation
Common-size Equation information on variance is ignored


How accountants use balance sheets

How Accountants Use Balance Sheets information on variance is ignored

May 23, 2012


Test your knowledge1

Test your knowledge information on variance is ignored


What is the purpose of accounting3
What is the purpose of Accounting? information on variance is ignored


What is the purpose of accounting4
What is the purpose of Accounting? information on variance is ignored

To make wise business decisions



The 3 financial documents on a six column work sheet are1
The 3 financial documents on a six-column work sheet are: information on variance is ignored

  • Trial Balance

  • Income Statement

  • Balance Sheet


Fill in the blank
Fill-in the blank information on variance is ignored

  • When creating a six-column worksheet drawings is add to the ___________ column.


Fill in the blank1
Fill-in the blank information on variance is ignored

  • When creating a six-column worksheet drawings is add to the Balance Sheet debit column.


True false
True / False information on variance is ignored

  • In a six column work sheet, the difference between the assets and the liabilities/capital is the net income/loss.


Chapter 8 the six column work sheet

True information on variance is ignored


Fill in the blanks
Fill-in the blanks information on variance is ignored

  • Net income occurs when the total _________ of the balance sheet are greater than the total __________ of the balance sheet.


Fill in the blanks1
Fill-in the blanks information on variance is ignored

  • Net income occurs when the total debits of the balance sheet are greater than the total credits of the balance sheet.


Question
Question information on variance is ignored

  • Which techniques have you learned so far to analyze income statements?


Techniques
Techniques information on variance is ignored

  • Amount changes

  • Percent changes

  • Trend analysis

  • Common-size income statements



How can two companies income statements of different sizes be compared1
How can two companies’ income statements of different sizes be compared?

  • Divide all account values by the total sales and show changes as percentages.


How accountants use balance sheets1

How Accountants Use Balance Sheets sizes be compared?

May 23, 2012



Account form of the balance sheet
Account form of the balance sheet sizes be compared?

  • Assets listed on the left side

  • Liabilities and Capital listed on the right


Heading

Assets sizes be compared?

Liabilities

Capital

Heading


Report form of the balance sheet
Report form of the balance sheet sizes be compared?

  • Assets on the top

  • Liabilities and Capital on the bottom

  • Allows for easier analysis


Heading1

Assets sizes be compared?

Liabilities

Capital

Heading


Classified balance sheet
Classified Balance Sheet sizes be compared?

  • Data grouped according to major categories


The categories are

The categories are: sizes be compared?


Current assets
Current Assets sizes be compared?

  • Assets that will be converted into cash (or used up) during the next year.


Fixed assets
Fixed Assets sizes be compared?

  • Long-term (plant and equipment): assets held for their usefulness in producing goods or services



Current liabilities
Current Liabilities sizes be compared?

  • Short-term debts, payment of which is expected to occur within one year (of the balance sheet date).


Long term liabilities
Long-term liabilities sizes be compared?

  • Debts of the business that are not due within one year.


Capital
Capital sizes be compared?

  • Shows starting Capital

  • Net income/Loss

  • Drawings

  • Current Capital



Working capital
Working Capital sizes be compared?

Working Capital = Current Assets – Current liabilities

  • Used to determine the ability of a company to pay debts

  • Higher the working capital the better


Example1
Example sizes be compared?

Dares Bikes:

  • Current Assets = $50,000

  • Current Liabilities = $30,000

  • What information does this give us regarding Dares Bikes?


Working capital1
Working Capital sizes be compared?

  • Working Capital = 50,000-30,000 = 20,000

  • Dares Bikes within the next year expects to receive $50,000 from sources and must pay $30,000. With a working capital of $20,000, Dares Bikes has an excellent ability to pay off debts. Dares Bikes may in fact wish to borrow more money to expand business.



Comparative statements
Comparative Statements statements

  • Compares statements of a previous year to the current year and shows the increase/decrease for each account (as an amount and percent)


Example2
Example statements

  • P272


Trend analysis1
Trend Analysis statements

  • Used to show changes over several periods

  • Example p 273


Common size statements
Common-Size Statements statements

  • All account balances are divided by total assets