MEANINGS
A worksheet is a
working paper for an accountant. It shows the details of accounting works and
adjustments to check their arithmetical accuracy before preparing financial
statements. It is also known as extended trial balance and this terminology is
quite popular in the British accounting literature.
A worksheet is a
columnar sheet of paper used in the accounting cycle to facilitate the work of
making adjusting and closing entries and preparing financial statements. It is
a working paper, which helps the accountant to assemble all the ledger account
balances and adjustment information together on one schedule. In other words, a
worksheet is a schedule of data showing the relationship among (i) closing
entries (ii) adjusting entries (iii) adjusted trial balance,
and (iv) financial statements.
Actually, a worksheet
is a “Scratch Pad” tool for an accountant outside the accounting system.
Objectives of
worksheet
The objectives of the worksheet
are as follows:
o To preview the
possible adjustment entries in the financial statements.
o To facilitate the work
of making adjusting and closing entries.
o To make possible the
preparation of the interim statement.
o To facilitate the
analysis and rectification of errors.
PREPARATION OF
WORKSHEET FROM A TRIAL BALANCE WITH ADJUSTMENT
The preparation of
worksheet is optional. It is not a substitute to financial statements.
Knowledge of accounting standards and principles is essential to prepare
worksheet.
The following steps
are required procedures preparing a worksheet:
- Preparation of trial balance before adjustment.
- Incorporation of adjustments in a worksheet.
- Preparation of adjusted trial balance.
- Preparation of financial statements which are:
a) Income statement
b) Statement of retained
earnings
c) Balance sheet
Unadjusted trial
balance
Unadjusted trial
balance is the first part of the worksheet, just like a trial balance. The
trial balance which is prepared before the adjusting entries is called an unadjusted
trial balance. It is a list of debit and credit balances of account shown on
the worksheet as a starting step to verify the equality of the debit and credit
totals. Trial balance helps to check the arithmetical accuracy of the accounts.
Adjusting Entries
It is the second part
of the worksheet only adjustment items are recorded. Adjustment entries help to
enter the financial transactions in the worksheet by providing a separate debit
and credit columns for such adjustments. The debit and credit total of
adjustments should always remain equal.
Adjusted trial balance
It is the third part
of the worksheet which is a combination of unadjusted trial balance and
adjustment column. A trial balance prepared by incorporating adjustments is
called an adjusted trial balance. The adjusted trial balance is a compiled
worksheet of adjustments. A new account balance is obtained in the adjusted
trial balance. The total debit and credit of an adjusted trial balance should
always remain equal.
Financial statements
Once the adjusted
trial balance is completed, the financial statements are prepared in the
worksheet by extending debit and credit columns for:
i) Income statement
(profit and loss account)
ii) Statement of changes
in retained earnings (profit and loss appropriation account)
iii) Balance sheet
Income statements (Profit
and loss)
It is the fourth part
of the worksheet where all incomes and expenditures are recorded. It is the
permutation of the trading account and profit and loss account. The balance of
revenues and expenses listed in the adjusted trial balance is shown in the
income statement columns of the worksheet.
The amount of net
income is entered in the debit column of the income statement and then carried
to the credit column of the statement of changes in retained earnings.
Statements of Changes
in Retained Earnings
It is the fifth part
of the worksheet where includes the provision or proposed dividend and other. The
statement of change in retained earning contains the amount of beginning
retained earnings, net income after tax brought from income statements, amount
of are interim, and proposed dividends. The figures are obtained from the
adjusted trial balance. The difference between the total of debit and credit
columns is the ending amount of retained earnings, which is carried to the
balance sheet.
Balance sheet
The last and vital
section of the worksheet is the balance sheet, which shows the balances of
assets and equities brought from the adjusted trial balance. The total of the
assets and equities in the balance sheet should always remain equal.
Recording of
adjustment entries
Adjustment entries
refer to the information about the additional transaction, which is given
outside the trial balance. Adjustments are necessary to know the accurate
operating result and financial position of the business. The followings are
some of the important adjustments and their treatment in adjustment columns.
Closing stock: It is shown on the debit
and credit columns of the adjustment.
Outstanding expenses: It is shown on the debit
column of related expenses and credit column of outstanding expenses.
Prepaid expenses: It is shown on
credit column of related expense and debit column of prepaid expense.
Accrued income: It is shown on
credit column of related income and debit column of accrued income.
Expired expense: It is shown on debit
column of expired expense and credit column of prepaid expense.
Income earned: It is shown on debit
column of unearned income and credit column of income earned.
Depreciation: It is shown on debit
column of depreciation expense and credit column of related asset.
Appreciation: It is shown on
debit column of related asset and credit column of appreciation income.
Bad debt: It is shown on debit
column of bad debts and credit column of sundry debtors.
Provision for bad
debts: It
is shown on debit column of bad debts and credit column of provision for bad
debts.
Reviewed by Bijay Munikar
on
March 15, 2021
Rating:
No comments: