Chapter 8 – The six-Column Work Sheet

1. Chapter 8 – The six-Column Work Sheet May 16, 2012

2. What is the purpose of Accounting?

3. To make wise business decisions

4. Work Sheet • An informal business paper used to organize and plan the information for the financial statements.

5. Specifically for this Chapter you will learn how to use a 6-column work sheet

6. You will learn about 8-column work sheet in Chapter 9

7. Control Accounts • Accounts used to represent the sum of individual accounts of the same type. • Example: Accounts Receivable control accounts is the sum of all the individual Accounts Receivables.

8. Steps for Preparing a Work Sheet • Step 1 – Write in the heading.

9. Step 1 • The heading from left to right: • Company name • “Work Sheet” • Year Ended December 31, 20--

11. Steps for Preparing a Work Sheet • Step 1 – Write in the heading. • Step 2 – Enter all accounts with their balances in the first two columns under “Trial Balance.” Ensure it is in balance.

13. Steps for Preparing a Work Sheet • Step 1 – Write in the heading. • Step 2 – Enter all accounts with their balances in the first two columns under “Trial Balance.” Ensure it is in balance. • Step 3 - Extend the amounts to the corresponding columns on the right.

14. Step 3 • Assets and Liabilities go in the two farthest columns under “Balance sheet.” • Sales/Revenue and Expenses go to the middle columns under “Income Statement.”

16. Steps for Preparing a Work Sheet • Step 1 – Write in the heading. • Step 2 – Enter all accounts with their balances in the first two columns under “Trial Balance.” Ensure it is in balance. • Step 3 - Extend the amounts to the corresponding columns on the right. • Step 4 – Balance the worksheet

17. Step 4 • The income statement and Balance Sheet, alone, are not expected to balance • The difference between Sales/Revenue and Expenses represents the Net income/loss • The Net Income should also match the difference between assets and liabilities

18. Net Income  or Net Loss  • Net Income: Sales/Revenue > Expenses • Represented as a Debit under the Income statement and a Credit under the Balance Sheet columns • Net Loss: Sales/Revenue < Expenses • Represented as a CR under the Income statement and a DR under the Balance Sheet columns

20. Test your knowledge

21. What is the purpose of Accounting?

22. What is the purpose of Accounting? • To make wise business decisions

23. How do you tell if a company has made a profit or loss?

24. How do you tell if a company has made a profit or loss? • If Sales/Revenue is greater than expenses

25. What are the six steps of the accounting cycle learned so far?

26. What are the six steps of the accounting cycle learned so far? • Transactions occur • Transactions journalized • Journal entries posted to ledger • Trial Balance prepared • Worksheet prepared • Income statement and balance sheet prepared

27. Chapter 8 – How Accountants use Income Statements May 17, 2012

28. Comparing Income Statements • Used to calculate the change as either a dollar amount($) or percentage (%)

29. Example

30. This is just one example looking specifically at Car Expense

31. Accountants will use this analysis with several accounts and try to implement changes to make the company more profitable / efficient

32. Try it yourself 2010 2011 Wages Expense $21,000 $39,000 Calculate both the dollar change and percentage change.

33. Try it yourself 2010 2011 Wages Expense $21,000 $39,000 Calculate both the dollar change and percentage change. Dollar Change = 39,000-21,000 = 18,000 Percent Increase = 18,000/21,000 = 85.7%

34. Trend Analysis • Shows financial data over a number of consecutive periods.

35. When looking at the final results only, important information on variance is ignored

36. How to compare companies of different sizes

37. Common-Size Income Statements • Income statements of two companies compared side by side while expense accounts are shown as a percentage of sales.

38. Common-size Equation

39. How Accountants Use Balance Sheets May 23, 2012

40. Test your knowledge

41. What is the purpose of Accounting?

42. What is the purpose of Accounting? To make wise business decisions

43. The 3 financial documents on a six-column work sheet are:

44. The 3 financial documents on a six-column work sheet are: • Trial Balance • Income Statement • Balance Sheet

45. Fill-in the blank • When creating a six-column worksheet drawings is add to the ___________ column.

46. Fill-in the blank • When creating a six-column worksheet drawings is add to the Balance Sheet debit column.

47. True / False • In a six column work sheet, the difference between the assets and the liabilities/capital is the net income/loss.

48. True

49. Fill-in the blanks • Net income occurs when the total _________ of the balance sheet are greater than the total __________ of the balance sheet.

50. Fill-in the blanks • Net income occurs when the total debits of the balance sheet are greater than the total credits of the balance sheet.