Steps in Preparing the Worksheet

Steps in Preparing the Worksheet: Worksheet: In smaller companies the adjustments are usually entered directly in the journal and posted to the ledger, and the financial statements are prepared directly from the adjusted trial balance. For larger companies, however, which which may require many adjusting entries, a worksheet is essential. The work sheet is identified by a heading that consists of the name of the company, the title "ork !heet", and the period of time covered as on the income statement#. There are five steps in the preparation of a work sheet, as shown below$ (i) Entering the Account Balances in the Trial Balance Column:

The titles and balances of the accounts are copied directly from the ledger into the trial balance columns. hen a work sheet is prepared, a separate trial balance in not required. %owever, if it has been prepared, the balances may be posted from it in the work sheet. (ii) Entering the Adjustments in the Adjustment Columns:

 &djustments have been already e'plained. The same adjustments are enteredin the adjustment columns of the work sheet as shown in earlier e'ample. &s each adjustment is entered, a letter is used to identify the debit and credit parts of the same entry. In In practice, this letter may be used to reference supporting computations or documentation underlying the adjusting 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 the debits and credits of the adjustments are equal and generally reduces error in the preparation of the work sheet. (iii) Entering the Account Balances as Adjusted in the Adjusted Trial Balance Columns:

The adjusted trial balance prepared by combining the amount of each account in the original trial balance columns with the corresponding amounts in theadjustment(s columns and entering the combined amounts on a line by line basis in the adjusted trial balance columns. &djusted trial balance columns are then footed, that is totaled, to check the arithmetical accuracy of tile cross footing just like that of a normal trial balance. !ome accountants prefer to eliminate the adjusted trial balance columns and to e'tend the adjusted account balances directly to the appropriate statement column for ) to *+. !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 & Loss Columns or the Balance heet Columns! (i"e" from column # and $ to column % 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 is e'tended to its proper place as a debit or credit either in the balance sheet columns or in the trading and profit / loss columns. The result of e'tending the accounts is shown in e'ample0&#. 1evenue profits# and e'penses accounts are moved to the profit / loss columns. &ssets columns. &ssets and liabilities liabilities as welt as capital and drawings drawings accounts are then then e'tended to the balance sheet columns. To avoid over looking an account, e'tend the accounts line by line, beginning with the first line which is cash# and not omitting any. (v) Totaling Totaling the ncome tatement Columns and the Balance heet Columns" Enter the et ncome or et Loss in Both Pairs of Columns as a Balancing *igure! and +e,com-ute Column Totals:

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 76 th une is given below$

-ash in hand !undry debtors ?iscount ?rawings @pening stock 8urchases !ales returns Aiscellaneous trade e'penses 9abor wages !alaries Traveling e'penses  &dvertising 1ent and insurance Interest and bank charges Bad debts Buildings 8lant and machinery Furniture -apital 8urchases returns !ales gross# -reditors Bank overdraft Total Following additional information is also available$ i# -losing stock on 76th une is 345,666

3 =>6 4=666 766 **666 76666 )5666 +)66

3 0 0 0 0 0 0 0

)55

0

7566 5=66 >56 566 +>66 +*5 466 =666 *6666 5666 0 0 0 0 0 3'4544

0 0 0 0 0 0 0 0 0 0 75666 *766 *+5666 76666 *6666 3'4544

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 54 th 7une

@pening stock 8urchases )5666 9ess returns *766 2et 8urchase 9abor charges Dross profit carried down#

76666

!ales 9ess returns 2et sales -losing stock

*+5666 +)66 *++766 45666

)7)66 7566 =6*66

Total

$%544

Total

$%544

Dross profit B:d

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

766 5=66 566 +=56 +*5 466 *666 566 +766 )55 >56

2et profit carried to balance !heet

45676

 

=6*66

$444

$444

0 & 1 Com-an2 Balance heet as on 54 th 7une Ca-ital and Lia8ilities -apital 75666  &dd$ 8rofit 45676   >6676

Assets

-ash in hand 8repaid insurance !undary ?ebtors

=>6 *56

9ess$ ?rawings -reditors Bank @verdraft

**666 =E676 4=666 76666 9ess$ *6666 8rovision !tocks 8lant / Aachinery *6666 9ess$ ?epreciation Furniture 4945 5666 4 9ess$ ?epreciation Building

47)66 45666 +766 E666 4566 =666 *666 49454

566

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 . The trial balance for the B / A ?elivery -ompany as on ?ecember 7*, was as follows$

;e8it 3

-ash

Credit 3

*6=56

 &ccounts receivable

=466

!upplies on hand

*466

8repaid insurance

+466

8repaid rent

46666

 &ccounts payable

7*76

!ervice Fee received in advance

4566

-apital stock

56666

?ividends drawings#

7666

!ervice revenue

*6)66

 &dvertising e'penses

56

Das / oil e'penses

=>6

!alaries e'penses

7=66

tilities e'penses

*56 Total

$6 B &  ;eliver2 Com-an2 .or/sheet as on 5 st ;ecem8er 

$