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Chapter 8 the six column work sheet


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Chapter 8 the six column work sheet

  1. 1. The Six-Column Work Sheet Chapter 8
  2. 2. Exploring the Real Work of Business <ul><li>The metro system is operated by the Washington Metropolitan Area Transit Authority (WMATA), a not for profit organization. Revenues and expenses are monitored carefully by the managers since revenues must pay the full operating cost of the system. </li></ul><ul><li>What do you think? </li></ul><ul><li>If you worked for the Washington Metro , what information would you look for in monthly work sheets to alert you to revenue or expense problems. </li></ul>
  3. 3. Preparing the Work Sheet Section 1
  4. 4. What You’ll Learn <ul><li>The purpose of the work sheet </li></ul><ul><li>The kinds of information contained in the heading </li></ul><ul><li>How to prepare a trial balance on a work sheet </li></ul><ul><li>How to rule a section of the worksheet. </li></ul>
  5. 5. Key Terms <ul><li>Work sheet </li></ul><ul><li>ruling </li></ul>
  6. 7. The Sixth Step of the Accounting Cycle: The Work Sheet <ul><li>A work sheet – a working paper used to collect information from the ledger accounts in one place. </li></ul><ul><li>Gathers all the information needed to prepare the financial statements and to complete the end-of-period activities. </li></ul>
  7. 8. The Work Sheet <ul><li>The work sheet has 5 sections: </li></ul><ul><ul><li>The heading </li></ul></ul><ul><ul><li>The Account Name section </li></ul></ul><ul><ul><li>The Trial Balance section </li></ul></ul><ul><ul><li>The Income Statement Section </li></ul></ul><ul><ul><li>The Balance Sheet Section </li></ul></ul>
  8. 9. The Work Sheet Heading <ul><li>The work sheet head contains three kinds of information: </li></ul><ul><ul><li>The name of the business. </li></ul></ul><ul><ul><li>The name of the accounting form. </li></ul></ul><ul><ul><li>The period covered by the work sheet. </li></ul></ul>
  9. 10. The Account Name Section <ul><li>The account numbers and names are listed on the work sheet in the same order that they appear in the general ledger. </li></ul><ul><li>The order is: </li></ul><ul><ul><li>Assets </li></ul></ul><ul><ul><li>Liabilities </li></ul></ul><ul><ul><li>Owner’s equity </li></ul></ul><ul><ul><li>Revenues </li></ul></ul><ul><ul><li>Expenses </li></ul></ul>
  10. 11. Trial Balance Section <ul><li>The end of the period balance in the general ledger accounts are entered in the appropriate amount column. </li></ul><ul><li>Accounts with debit balances are entered in the trial balance debit column </li></ul><ul><li>Accounts with credit balances are entered into the trial balance credit column </li></ul>
  11. 12. Ruling and Totaling the Trial Balance Section <ul><li>Ruling means drawing a line </li></ul><ul><li>A single line drawn under a column means that the entries are to be added or subtracted. </li></ul><ul><li>After all names and balances are entered on the work sheet a single line is drawn across both columns of the trial balance section </li></ul><ul><li>If total debit does not equal total credit, there is an error. </li></ul><ul><ul><li>Find and correct the error before completing the work sheet. </li></ul></ul>
  12. 13. Check Your Understanding <ul><li>Thinking Critically </li></ul><ul><li>Communicating Accounting </li></ul><ul><li>Problem 8-1 Entering Account Balances on the Work Sheet </li></ul><ul><li>Problem 8-2 Analyzing a Source Document </li></ul>
  13. 14. Extending Amounts Across the Work Sheet Section 2
  14. 15. What You’ll Learn <ul><li>How to extend amounts to the Balance Sheet and Income Statement sections. </li></ul><ul><li>The importance of the matching principle. </li></ul><ul><li>How to calculate and show net income or net loss on the work sheet. </li></ul>
  15. 16. Key Terms <ul><li>Matching principle </li></ul><ul><li>Net income </li></ul><ul><li>Net loss </li></ul>
  16. 17. The Balance Sheet Section
  17. 18. The Income Statement Section
  18. 19. Totaling the Income Statement and Balance Sheet Sections
  19. 20. Showing Net Income on the Work Sheet <ul><li>Matching principle – expenses incurred in an accounting period is matched with the revenue earned during the same period. </li></ul><ul><li>It provides a reliable measure of profit </li></ul><ul><li>Net income is the amount of revenue that remains after expenses for the period are subtracted </li></ul><ul><li>Net income is entered as a debit at the bottom of the Income Statement section of the work sheet. </li></ul><ul><li>*** See Figure 8-8 on page 190. </li></ul>
  20. 21. Completing the Work Sheet
  21. 22. Showing a Net Loss on the Work Sheet <ul><li>When total expenses are greater than total revenue, a net loss occurs. </li></ul><ul><li>A net loss decreases owner equity. </li></ul><ul><li>This decrease is shown a a debit to the capital account </li></ul><ul><li>The steps to complete the work sheet is the same except Net Loss is the Account Name and the loss in enter in the credit column of the income statement and the debit column of the balance sheet section. </li></ul>
  22. 23. A review of the Steps in Preparing a Six-Column Work Sheet <ul><li>Write the heading on the work sheet. </li></ul><ul><li>In the Account Name and Trial Balance sections, enter the account numbers, names, and balances for all accounts in the general ledger. </li></ul><ul><li>Prove the equality of total debits and total credits in the trial balance section. </li></ul><ul><li>Extend the amounts of the Trial Balance section to the appropriate columns for Balance Sheet and Income Statement Sections </li></ul>
  23. 24. A review of the Steps in Preparing a Six-Column Work Sheet (cont.) <ul><li>Total the columns in the Income Statement and Balance Sheet sections. </li></ul><ul><li>Determine the amount of the net income or the net loss for the period. </li></ul><ul><li>Enter the amount of the net income or net loss in the appropriate column in the Income Statement and Balance Sheet sections. </li></ul><ul><li>Total and rule the Income Statement and Balance Sheet sections. </li></ul>
  24. 25. A Matter of Ethics <ul><li>Padding Expense Accounts </li></ul><ul><li>Imagine that you’re an auditor for an accounting firm like PricewaterhouseCoopers. You and a co-worker, Mark, have an allowance of $200 a day to cover lodging, meals, and transportation. At the end of the trip, you are to turn in an expense account report detailing how you spent the allowance. Mark adds a few dollars to each of his expenses so he can have some extra cash. You figure that the firm won’t miss a few dollars, so you consider doing the same. </li></ul><ul><li>Ethical Decision Making: </li></ul><ul><ul><li>What are the ethical issues? </li></ul></ul><ul><ul><li>What are the alternatives? </li></ul></ul><ul><ul><li>Who are the effected parties? </li></ul></ul><ul><ul><li>How do the alternatives effect the parties </li></ul></ul><ul><ul><li>What would you do? </li></ul></ul>
  25. 26. Check Your Understanding <ul><li>Thinking Critically </li></ul><ul><li>Computing in the Business World </li></ul><ul><li>Problem 8-3 Extending Amounts Across the Work Sheet </li></ul>