Amodia (Accounting Notes - Worksheet)

Cluver Aedrian M.
Amodia ACC 111 (1171) - MSAT 1 (2:30 – 3:30 pm)
WORKSHEET
- Worksheets are commonly used by accountants to facilitate data transfer from the adjusted trial balance to the
financial statements. The previous lessons (AJE preparation) will provide the necessary data for worksheet
preparation.
1. Worksheet
- It is a working document that summarizes data from the General Ledgers to help with financial statement
preparation. This document is created when the accountant is ready to make changes to the figures in the
unadjusted trial balance. Actually, adjustment entries and worksheets are created at the same time. For small
businesses with few accounts, financial statements can be generated immediately from the adjusted trial
balance.
2. Unadjusted Trial balance
- This is a summary of the data from the journal. The goal of this document is to demonstrate the equality of
debits and credits before proceeding to the next phase in the accounting process. This document will assist the
accountant in identifying which accounts require modifications.
3. Adjusted trial balance
- This is a trial balance created after posting/plotting the adjusting journal entries on the worksheet. This will
also act as a signal to the bookkeeper to record the adjusting entries in the general diary and send to GL. The
adjusted balance is calculated to simplify data transmission to the FS. As a result, the modified trial balance
balances should be reconciled with the updated GL.
4. Footing
- In accounting footing means to add vertically, cross-footing means to add or deduct horizontally.
5. Real Accounts (Permanent Accounts)
- Refers to Assets, Liabilities and Equity accounts, balances of which is normally carried forward in the next
accounting period.
6. Nominal or (Temporary Accounts)
- Refers to the Revenue and Expenses accounts which is normally close at the end of the accounting period.
PREPARING A WORKSHEET
There are 5 steps in the preparation of worksheet.
Label first the worksheet: put heading either at the upper center or upper left corner of the worksheet. The
heading shall contain the (a) name of the company or owner; (b) name of the document (worksheet); (c) date. You will
also put label on the 10 columns; first2 columns “unadjusted trial balance Dr. and Cr.”; next 2 columns “adjustments
Dr. and Cr.”; next 2 columns “adjusted trial balance Dr. and Cr.”: next 2 columns “Income Statement” Dr. and Cr.;
and the last 2 columns “Balance Sheet or SFP” Dr. and Cr.
Step 1
On the first 2 columns enter the account balances extracted from the general ledgers (Unadjusted trial Balance).
Arrange the account in the same manner they are arranged in the GL (Assets, Liabilities, Equity, Withdrawals,
Revenue and Expense). Foot the unadjusted trial balance to check if the totals are equal.
Step 2
On the next 2 columns (3 and 4 cols.” Adjustments”) enter the adjusting entries and foot the debits and credits to
determine if the totals are equal. For each adjusting entries a letter is used to identify the debit entry and the
corresponding credit entry (this is called referencing for easy traceability). Note the adjustments are not entered yet in
the journal until after the worksheet is completed. This is to ensure that no adjustments are overlook.
Step 3
Compute the adjusted balance of each account by adding or deducting the account balances from the unadjusted trial
balance. Enter the adjusted amounts in the “adjusted trial balance” columns.
To summarize:
a.) Debit + Debit, balance debit;
b.) Debit – Credit, balance it depends (if Debit is greater than credit) debit balance (If Credit is greater than debit)
credit balance.
c.) Credit + Credit balance credit
You are going to copy in the adjusted columns all other accounts that were not affected by the adjustment then foot
the adjusted trial balance to check whether the total of the debits and credits are equal.
Step 4
From the adjusted trial balance extend to the balance sheet columns all real accounts (Assets, Liabilities, Equity) and
to the income statement columns all nominal accounts (Revenue and Expenses). Withdrawal is extended to the
Balance Sheet column.
Step 5
Compute profit or loss. The difference between total Revenues and Total Expenses in the income statement represents
the performance of the business. If the total revenue (credit side of the income statement column) is greater than the
total expenses (debit side of the income statement column) the result is a net profit, net loss if total expenses is greater
than the total revenue. Enter profit or loss as a balancing amount in the income statement and in the balance sheet, and
compute the final column totals.
Two Forms of Income Statement
• single-step form – for the service concern

• multiple-step – form for the merchandising or trading concern.
Requisites of a good form financial statements:

A. There must be a heading
B. For income statement, operating expenses must be presented separately from interest expense to determine the
operating income.
C. Computation of operating Income is important because it will tell the users, how efficient is the company in
generating income from its operations.
D. In the statement of financial position, you have to categorize assets as to Current Assets from
Non-current Assets; Liabilities as to Current Liabilities from Non-Current Liabilities. This is important for the
users to evaluate the financial condition of the business as to liquidity, solvency and profitability.
CLOSING ENTRIES
- Some accounts (of a temporary nature) must be closed at the conclusion of the accounting period following
the preparation of financial statements. Only permanent accounts (actual) are carried over to the following
accounting period, requiring another cycle of recording, classifying, and summarizing. It is called a cycle due
to its features of repeating.
Closing Entries
- Income, and Expenses are temporary accounts that facilitate the preparation of income statement for a
given accounting period. After the preparation of income statement at the end of each year, all accounts
that appear in the income statement are closed and the difference between revenue and expense (net profit
or loss) is transferred to the capital account. In other words, the capital may increase or decrease
depending on the result or performance of the entity. The process of transfer is called closing procedure
(This is step 7 in the accounting cycle). There is a need to prepare closing entries so that those temporary
accounts will be closed at the end of the period. Another temporary accounts that is close to capital is the
withdrawals made by the owner. This account always decreases the capital account.
Post-closing Trial Balance (8th step of the accounting cycle)

- To ensure that all closing entries are properly posted and all balances of the real accounts are correct for
easy transfer to the next accounting period a post-closing trial balance is necessary. This trial balance
contains only balance sheet or permanent accounts such as Assets, Liabilities and ending Capital balance.
Why do we have to prepare post-closing trial balance?
a. To prove the equality of debits and credits, and to ensure that the amounts forwarded to the next accounting period
are accurate.
b. For easy transfer and traceability of the accounts.
Reversing Entry (RE)

- Is a journal entry which is the exact opposite of a related adjusting entry made at the end of the accounting
period. This is a technique in bookkeeping to simplify the recording of regular transactions in the next
accounting period. RE is normally prepared at the beginning of the next accounting period. Therefore, this
is the first entry that should appear in the general journal.
What adjusting entries are subject to reversing entries?

A. All accruals (Income and Expense) are to be reversed.
B. Deferrals of Income – if the AJE recognize liability
C. Deferral of Expense – if the AJE recognize the asset

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Cluver Aedrian M.

Amodia ACC 111 (1171) - MSAT 1 (2:30 – 3:30 pm)

Two Forms of Income Statement

• single-step form – for the service concern

Requisites of a good form financial statements:

Post-closing Trial Balance (8th step of the accounting cycle)

Reversing Entry (RE)

What adjusting entries are subject to reversing entries?

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