Workbook.Chapter 6 Worksheet PDF

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Chapter 6 WORKSHEET

Work Sheet is a columnar sheet or paper used by the accountant, which will show the preliminary trial balance as well as the adjustments to the ledger balances. After determining the adjusted balances of the different accounts, the nominal accounts (accounts which will be shown in the Statement of Comprehensive Income) will be segregated from the real accounts (accounts that will be reflected in the Statement of Financial Position) to facilitate the preparation of the formal financial statements. The worksheet may also discover potential errors. It will also aid the accountant in the performance of the end-ofthe-cycle activities. Steps in Preparing the Work Sheet: 1. Write the heading of the worksheet – a) First line, name of the firm; b) Second line, name of the document– Work Sheet; c) Third line, the accounting period covered. 2. Copy all the accounts in the general ledger together with their unadjusted balances in the Trial Balance columns of the work sheet and total the amounts of the debit and credit columns. (They should balance). 3. Enter the adjustments in the Adjustments columns and total the amounts of the debit and credit columns. (They should balance). 4. Compute the adjusted balances of the different accounts by combining the original balance and the adjustments and extend the adjusted amounts to the Adjusted Trial Balance columns. Total the amounts of the debit and credit columns. (They should balance). 5. Extend the asset, liability, and owner’s equity amounts from the Adjusted Trial Balance columns to the Statement of Financial Position columns . Extend the revenues, costs and expense amounts to the Statement of Comprehensive Income columns. Total the debit and credit columns of the Statement of Financial Position and Statement of Comprehensive Income columns.

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6.

If the credit side of the Statement of Comprehensive Income columns is bigger than the debit side, it means there is a net profit. Write the difference on the debit side to balance. If it is smaller, there is a net loss. Write the difference on the credit side to balance. 7. Extend the Profit or loss to the Statement of Financial Position columns to balance the total debits and credits. If there is a Profit, extend this amount to the credit side of the Statement of Financial Position and if there is a net loss, extend on the debit side of the Statement of Financial Position.

Note: An out-of balance condition indicates an error in preparing the work sheet. Example Problem 1: Mr. Filo Sopo operates an accounting firm and the following unadjusted ledger balances as of December 31 of the current year are made available. Cash Accounts Receivable Notes Receivable Accrued Interest Income Prepaid Insurance Office Equipment Accumulated Depreciation Accounts Payable Accrued Salary Expense Accrued Rent Expense Unearned Rental Income

30,250.00 50,000.00 20,000.00 0.00 0.00 91,600.00 18,320.00 9,250.00 0.00 0.00 1 2,500.00

Filo Sopo, Capital Filo Sopo, Drawing Fees Earned Rental Income Salary Expense Utilities Expense Insurance Expense Supplies Expense Depreciation Expense Miscellaneous Expense Interest Income

64,880.00 40,400.00 439,500.00 0.00 215,500.00 6,500.00 7,200.00 5,400.00 0.00 12,600.00 0.00

The data needed to determine the year-end adjustments are as follows: 1. Office Supplies used during the year amounted to P4,050. 2. One-year insurance premium was paid on April 1 of the current year. 3. Office Equipment has a useful life of 10 years without salvage value. 4. Monthly rental for December in the amount of P 5,000 was due but not yet paid. 5. Accrued fees earned but not yet collected, P10,000. 6. Unpaid Salaries and wages at December 31 were P4,400. 7. Unearned Rental Income as at December 31 were P6,500. 8. The 60-day, 12% note receivable was received on December 1. Required:

a. Prepare the necessary adjusting entries. b. Prepare a 6-column worksheet with the following column headings: Trial

Balance, Adjustments, and Adjusted Trial Balance. c. Prepare an adjusted trial balance at December 31.

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Solution to Example Problem 1a: GENERAL JOURNAL 1.

2.

3.

4.

5.

6.

7.

8.

Page 3

Office Supplies Supplies Expense Computation: P5,400 – 4,050 = 1.350

1,350

Prepaid Insurance Insurance Expense Computation: P7,200/12= 600 x 3 = 1,800

1,800

Depreciation Expense Accumulated Depreciation Computation: P91,600/10 = 9,160

9,160

Rent Expense Accrued Rent Expense Computation: P55,000/11 = 5,000

5,000

Accounts Receivable Fees Earned

1,350

1,800

9,160

5,000

10,000 10,000

Salary Expense Accrued Salary Expense

4,400

Unearned Rental Income Rental Income Computation: P12,500 – 6,500 = 6,000

6,000

Accrued Interest Income Interest Income Computation: P20,000 x 12 x 30/360 = 200

4,400

6,000

200 200

Notes to Adjustments: 1. 2. 3. 4. 5. 6. 7. 8.

Office supplies in the unadjusted trial balance is zero, therefore the Expense method of recording was used. Prepaid insurance amount is not shown in the trial balance; therefore the Expense method of recording was used. The unexpired portion of the insurance is three months. Since the business is on its third year of operation, depreciation for the current year is equivalent to one year. January to November is 11 months that is used to divide P55,000. Fees earned but not yet collected is accrued income. Accrued income is also referred to as accounts receivable. Unpaid salary is an accrued expense. Unearned Rental Income account is shown in the trial balance; therefore the Liability method of recording was used. Interest on notes receivable has accrued for 30 days (December 1-31).

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Solution to Example Problem 1b (Six-Column Worksheet):

Account Title Cash Accounts Receivable Note Receivable Accrued Interest Income Office Supplies Prepaid Insurance Office Equipment Accumulated Depreciation Accounts Payable Accrued Rent Expense Accrued Salary Expense Unearned Rental Income Filo Sopo, Capital Filo Sopo, Drawing Fees Earned Rental Income Salary Expense Rent Expense Utilities Expense Insurance Expense Supplies Expense Depreciation Expense Miscellaneous Expense Interest Income Totals

Filo Sopo, CPA Trial Balance December 31, 2015 Trial Balance Adjustments Debit Credit Debit Credit 30,250.00 50,000.00 5) 10,000.00 20,000.00 8) 200.00 0.00 0.00 91,600.00

1) 1,350.00 2) 1,800.00 18,320.00 9,250.00 0.00 12,500.00 64,880.00

1,350.00 1,800.00 91,600.00 3) 9,160.00 4) 6)

27,480.00 9,250.00 5,000.00 4,400.00 6,500.00 64,880.00

5,000.00 4,400.00

7) 6,000.00

40,400.00

40,400.00 439,500.00

215,500.00 55,000.00 16,500.00 7,200.00 5,400.00 0.00 12,600.00

Adjusted Trial Balance Debit Credit 30,250.00 60,000.00 20,000.00 200.00

5) 10,000.00 g) 6,000.00

449,500.00 6,000.00

6) 4,400.00 4) 5,000.00

219,900.00 60,000.00 16,500.00 2) 1,800.00 5,400.00 1) 1,350.00 4,050.00 3) 9,160.00 9,160.00 12,600.00 8) 200.00 200.00 544,450.00 544,450.00 37,910.00 37,910.00 573,210.00 573,210.00

Note: You key each adjusting entry by placing a letter or number (cross-referencing) for each debit and credit entry. It is the money column that is counted in determining the number of columns used in a worksheet or how many columns a worksheet has.

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Solution to Example Problem 1c: Filo Sopo, CPA Adjusted Trial Balance December 31, 2015 ACCOUNT TITLE Cash Accounts Receivable Notes Receivable Accrued Interest Income Office Supplies Prepaid Insurance Office Equipment Accumulated Depreciation Accounts Payable Accrued Rent Expense Accrued Salary Expense Unearned Fees Filo Sopo, Capital Filo Sopo, Drawing Fees Earned Rental Income Salary Expense Rent Expense Utilities Expense Insurance Expense Supplies Expense Depreciation Expense Miscellaneous Expense Interest Income Totals

DEBIT P

CREDIT

30,250.00 60,000.00 20,000.00 200.00 1,350.00 1,800.00 91,600.00 P 27,480.00 9,250.00 5,000.00 4,400.00 6,500.00 64,880.00 40,400.00 449,500.00 6,000.00 219,900.00 60,000.00 16,500.00 5,400.00 4,050.00 9,160.00 12,600.00 200.00 P 573,210.00

P 573,210.00

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10-COLUMN WORKSHEET (SERVICE BUSINESS) A sample 10-column worksheet format is shown below: The preliminary trial balance of Sonny Pulgar Law Office and the adjusting entries shown below will be used to illustrate how to prepare the 10-column worksheet. SONNY PULGAR LAW OFFICE Trial Balance December 31, 2015 ACCOUNT TITLE Cash P Accounts Receivable Office Supplies Prepaid Insurance Furniture and Equipment Accounts Payable Loan Payable Sonny Pulgar, Capital Sonny Pulgar, Drawing Legal Fees Earned Salary Expense Advertising Expense Utilities Expense Miscellaneous Expense Totals P

DEBIT

CREDIT

78,400.00 8,900.00 2,500.00 6,000.00 75,000.00 P 30,000.00 60,000.00 60,000.00 12,000.00 44,400.00 5,500.00 3,600.00 1,500.00 1,000.00 194,400.00

____________ P 194,400.00

ADJUSTING JOURNAL ENTRIES: GENERAL JOURNAL Dec.

31

31

31

31

31

31

31

Insurance Expense Prepaid Insurance

Page 3 500 500

Rent Expense Accrued Rent Expense

4,000

Interest Expense Accrued Interest Expense

600

4,000

600

Prepaid Advertising Advertising Expense

2,400

Legal Fees Earned Unearned Legal Fees

5,000

2,400

5,000

Supplies Expense Office Supplies

900

Depreciation Expense Accumulated Depreciation

625

900

625

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After the adjusting entries have been posted to the appropriate ledger accounts, the balances of the different accounts should be in agreement with the amounts to be reported in the financial statements. SONNY PULGAR LAW OFFICE Worksheet For the Month Ended December 31, 2015

Trial Balance Account Titles Cash

Debit

Credit

Adjustments Debit

Credit

Adjusted T/B Debit

Credit

Statement of Comprehensive Income Debit

Credit

Statement of Financial Position Debit

78,400

78,400

78,400

Accounts Receivable

8,900

8,900

8,900

Prepaid Insurance Office Supplies

6,000 2,500

5,500 1,600

5,500 1,600

Furniture & Equipment

500 900

75,000

75,000

Credit

75,000

Accounts Payable

30,000

30,000

30,000

Loan Payable Sonny Pulgar, Capital

60,000 60,000

60,000 60,000

60,000 60,000

SonnyPulgar, Drawing

12,000

12,000

5,500

Advertising Expense

3,600

1,200

1,200

Utilities Expense

1,500

1,500

1,500

Miscellaneous Expense

1,000

1,000

1,000

500

500

TOTALS Insurance Expense Rent Expense Accrued Rent Expense Interest Expense.

44,400

5,000

12,000

Legal Fees Earned Salary Expense

5,500 2,400

500 4,000 600 600

Depreciation Expense

625

600

600 2,400

5,000 900

14,025 199,625

5,000 900

625 625

14,025

4,000 600

2,400 5,000

Accumulated Dep”n.

4,000 4,000

600

2,400 900

TOTALS

5,500

4,000 4,000

Unearned Legal Fees Supplies Expense

TOTALS Profit

39,400

194,400 194,400

Accrued Interest Exp. Prepaid Advertising

39,400

625 625 199,625

625 15,825 23,575

39,400

39,400 183,800

160,225 23,575

39,400 183,800 183,800

After the worksheet has been prepared, the formal financial statements (end-products of accounting) will be prepared. The financial statements are: Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Financial Position and Statement of Cash flows. The formal financial statements are presented below:

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Statement from the Worksheet of Sonny Pulgar Law Office: SONNY PULGAR LAW OFFICE STATEMENT OF COMPREHENSIVE INCOME For the Month Ended December 31, 2015 INCOME: Legal Fees Earned EXPENSES: Salary Rent Advertising Utilities Insurance Supplies Depreciation Miscellaneous Interest Total Expenses Profit from Operations

P 39,400.00 P 5,500.00 4,000.00 1,200.00 1,500.00 500.00 900.00 625.00 1,000.00 600.00 15,825.00 P 23,575.00

Statement of Changes in Equity from the Worksheet of Sonny Pulgar Law Office: SONNY PULGAR LAW OFFICE STATEMENT OF CHANGES IN EQUITY For the Month of December 31, 2015 Sonny Pulgar, Capital, December Investment in December Profit for December Total Less: Withdrawals Increase in Owner’s Equity Sonny Pulgar, Capital, December 31

P

0.00

60,000.00 23,575.00 83,575.00 12,000.00 71,575.00 P 71,575.00

Statement of Financial Position from the Worksheet of Nestor Martel Law Office: SONNY PULGAR LAW OFFICE STATEMENT OF FINANCIAL POSITION December 31, 2015 ASSETS Current Assets: Cash Accounts Receivable Prepaid Advertising Prepaid Insurance Office Supplies Property and Equipment: Furniture and Equipment Less: Accumulated Depreciation

P 78,400.00 8,900.00 2,400.00 5,500.00 1,600.00 P

96,800.00

P 75,000.00 625.00 74,375.00

TOTAL ASSETS

P 171.175.00

178 Worksheet LIABILITIES & OWNER’S EQUITY Current Liabilities: Accounts Payable Accrued Rent Expense Accrued Interest Expense Unearned Legal Fees Long-Term Liability Loan Payable Total Liabilities Owner’s Equity Sonny Pulgar, Capital

P 30,000.00 4,000.00 600.00 5,000.00 P 39,600.00 60,000.00 99,600.00 71,575.00

TOTAL LIABILITIES & OWNER’S EQUITY

P171,175.00

SONNY PULGAR LAW OFFICE STATEMENT OF CASH FLOWS For the Month Ended December 31, 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Legal Fees Collected P 35,500 Expenses paid: Insurance (6,000) Office Supplies (2,500) Miscellaneous Expenses (1,000) Advertising (3,600) Salary (5,500) Utilities (1,500) Net Cash Flows from Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES: Partial payment of equipment bought CASH FLOWS FROM FINANCING ACTIVITIES: Initial investment of the owner P 60,000 Loan 60,000 Withdrawal of the owner (12,000) Net Cash Flows from Financing Activities NET CASH FLOWS (Ending Cash Balance)

P 15,400

(45,000)

108,000 P 78,000

NOTES TO THE STATEMENT OF CASH FLOWS: 1.

Only cash transactions affecting the profit from operations will be shown in the Cash flows from Operating Activities. 2. Only cash transactions affecting the property and equipment will be shown in the Cash Flows from Investing Activities. 3. Only cash transactions affecting the liabilities and owner’s equity will be shown in the Cash Flows from Financing Activities.

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QUIZZERS True or False Instruction: On the spaces before each number, write true if the statement is correct and write false if the statement is incorrect. 1. Worksheet is used as a bridge connecting trial balance and the financial statements. 2. Formal financial statements can be prepared even if there is no worksheet. 3. The purpose of the worksheet is to accompany the financial statements to prove that everything is complied with. 4. In a worksheet, the amounts of debit and credit columns of both income statement and balance sheet when totaled are not “in-balance”. 5. In a worksheet, when the total of the debit column of the income statement exceeds the total of the credit column, it signifies “loss”. 6. In a worksheet, when the total of the credit column of the balance sheet exceeds the total of the debit column, it signifies “profit”. 7. All nominal accounts are extended to the balance sheet section of the worksheet. 8. All real accounts are extended to the debit side of the income statement section of the worksheet. 9. The income statement shows the temporary or real account. 10. The balance sheet shows the permanent or nominal accounts. 11. Both balance sheet and income statements can be prepared on a monthly or quarterly basis. 12. Financial statements can be prepared on an interim basis. 13. A balance sheet regardless of monthly or quarterly preparation should always be worded “as of”. 14. An interim financial statements are statements prepared at any given period during the year. 15. An income statement is worded “for the period ended” and not “for the year ended” if it is to be used as interim report....