Work Sheet:
Learning Objectives:
-
Define and explain work sheet.
-
What
are its advantages?
-
Prepare a worksheet.
Definition and Explanation:
A work
sheet is a large columnar sheet of paper, especially
designed to arrange in a convenient systematic form all
the accounting data required at the end of the period.
The work sheet is not a part of the permanent
accounting record but it is a working paper of
accountants, prepared by pencil. If an error is made on
the work sheet, it may be erased an corrected much more
easily than an error on the formal accounting records.
The work sheet is designed in a manner that it minimizes
the chances of errors to the maximum possible extent. It
brings into light many types of discrepancies which
otherwise might be entered in the
journal and
posted to the
ledger accounts.
It must be
remembered that it is not necessary to write $ signs,
decimal points or commas with the amounts entered on the
work sheet. The satisfactory completion of work sheet
provides considerable assurance that all the details of
the end of period accounting procedures have been
properly brought together. It also serves as the source
from which formal financial statements are prepared and
the adjusting and closing entries are made in the
journal and
then posted to the
ledger.
We may
further proceed with the help of an example.
Example of Work Sheet:
Sunshine
is a trading concern. Its trial balance and adjustments
are given below:
|
Dr. |
Cr. |
Cash |
37080 |
|
Accounts
receivable |
52320 |
|
Notes
receivable |
24000 |
|
Merchandise
inventory on 1.1.2005 |
31650 |
|
Prepaid
insurance |
4800 |
|
Prepaid rent |
4395 |
|
Store supplies |
1650 |
|
Furniture and
fixtures |
13500 |
|
Accumulated
depreciation - furniture |
|
3000 |
Office
equipment |
11700 |
|
Accumulated
depreciation office equipment |
|
4500 |
Accounts
payable |
|
28600 |
Owner's equity |
|
96000 |
Drawings |
4500 |
|
Purchases |
180000 |
|
Sales |
|
289200 |
Sales returns
and allowances |
6000 |
|
Purchases
returns and allowances |
|
2500 |
Freight
inwards and customs duty |
5750 |
|
Sales salaries |
34200 |
|
Advertising
expenses |
3795 |
|
Delivery
expenses |
2850 |
|
Office
expenses |
3510 |
|
Office
salaries |
3000 |
|
Interest
income |
|
900 |
|
|
|
|
424700 |
424700 |
|
|
|
Adjustments:
- Merchandise
inventory on 31.12.2005 was 40000.
- Rent expired
during the year $2800.
- Insurance expired
during the year $2500.
- Outstanding sales
salaries $2100
- Insurance
receivable $200.
- Stores supplies
inventory on 31.12.2005 was $650.
- Depreciate
furniture and fixture by 10% p.a. and office
equipment by 20% p.a.
- Write off
uncollectibles at $600.
The headings of the
work sheet in our example for Sunshine consists of three
parts:
- The name of the
business.
- The title work
sheet.
- The period of time
covered.
The form of work sheet
has an account title column and the money column
arranged in five pairs of debit and credit columns. The
main headings of the five set of money columns are:
- Trial balance.
- Adjustments.
- Adjusted trial
balance.
- Income statement.
- Balance sheet.
These five sets of
columns have been explained below:
Trial Balance:
The
trial
balance data may be assembled directly on the work
sheet form or they may be prepared on another sheet
first and then copied on the work sheet.
Adjustments Columns:
Students are advised to
record the adjusting entries first on a separate sheet
of paper before recording adjustments in the adjustment
columns of work sheet. It will definitely make the
procedure more simple for them. The adjusting entries
for the adjustments given in the example are shown
below:
|
|
|
$ |
$ |
(a) |
Merchandise
closing inventory |
Dr. |
40,000 |
|
|
Income summary |
|
|
40,000 |
|
|
|
|
|
(b) |
Rent expenses |
Dr. |
2800 |
|
|
Prepaid rent |
|
|
2800 |
|
|
|
|
|
(c) |
Insurance
expenses |
Dr. |
2500 |
|
|
Prepaid insurance |
|
|
2500 |
|
|
|
|
|
(d) |
Sales salaries
expenses |
Dr. |
2100 |
|
|
Outstanding sales salaries |
|
|
2100 |
|
|
|
|
|
(e) |
Interest
receivable |
Dr. |
200 |
|
|
Interest revenue |
|
|
200 |
|
|
|
|
|
(f) |
Store supplies
expenses |
Dr. |
1000 |
|
|
Store supplies |
|
|
1000 |
|
|
|
|
|
(g) |
Depreciation
expenses - furniture & fixture |
Dr. |
1350 |
|
|
Accumulated depreciation - furniture &
fixture |
|
|
1350 |
|
|
|
|
|
(h) |
Depreciation
expenses - office equipment |
Dr. |
2340 |
|
|
Accumulated depreciation - office equipment |
|
|
2340 |
|
|
|
|
|
(i) |
Bed debt
expenses |
Dr. |
600 |
|
|
Accounts receivable |
|
|
600 |
|
|
|
|
|
If the
titles of some accounts in all adjusting entries are
not included in the titles already appearing in the
trial balance, they should be inserted below the
trial balance totals in the title column. For
example, the title not appearing in the trial
balance are merchandise closing inventory, income
summary, rent expenses, insurance expenses,
outstanding expenses, outstanding sales salaries,
store supplies expenses, depreciation expenses -
furniture, depreciation expense - furniture,
depreciation expense - equipment and bad debts.
Both
the debit and credit parts of an adjusting should be
inserted on the appropriate lines before going on to
another adjustment. The sequence of adjustments is
not important, except that there is a time and
accuracy advantage in following the order in which
the adjustments are assembled.
Adjusted Trial Balance Columns:
The
amounts in the trial balance columns are combined
with the amounts in the adjustments column and
extended to the adjusted trial balance columns. For
example, the prepaid rent in the debit column of
trial balance is $4395 and in the adjustments
column, it is in the credit column at $2800 (see
adjusting entry), so the amount extended (written)
in the debit column of adjusted trial balance will
be $1595 (4395 - 2800).
The
same procedure is continued until all the account
balances have been extended to the adjusted trial
balance columns. The debit and credit columns are
then totaled to prove that no arithmetical errors
have been made up to this point. Now, the adjusted
trial balance will be a complete source of
information for the preparation of financial
statements.
Income Statement and Balance Sheet
Columns:
The
data in the adjusted trial balance columns are
extended to one of the remaining four columns. The
amounts of assets, liabilities, capital and drawings
are extended to the balance sheet columns and the
revenues and expenses are extended to the income
statement columns.
In our
example, the first account listed is cash and the
balance appearing in the original trial balance
debit column and in the adjusted trial balance debit
column is 37080. Cash is an asset, it is listed on
the balance sheet of the asset column. The balance
of accounts receivable is extended in similar
fashion. The balance of $51720 (adjusted balance) is
extended to the debit column of balance sheet. The
same procedure is continued until all the balances
in adjusted trial balance are extended to
appropriate columns.
After
all the balances have been extended, each of the
four columns is totaled. The net income or the net
for the period is the amount of the difference
between the totals of the two income statement
columns. If the credit column total is greater than
the debit column total, the excess is the income.
Keeping in view the above mentioned procedure the
work sheet is prepared below:
Sun Shine
Work Sheet for the year ended 21.12.2005
|
Account Title |
Trial Balance |
Adjustments |
Adjusted
Trial Balance |
Income
Statement |
Balance Sheet |
|
|
Dr. |
Cr. |
Dr. |
Cr. |
Dr. |
Cr. |
Dr. |
Cr. |
Dr. |
Cr. |
1 |
Cash |
37080 |
|
|
|
37080 |
|
|
|
37080 |
|
2 |
Accounts
receivable |
52320 |
|
|
i-600 |
51720 |
|
|
|
51720 |
|
3 |
Notes receivable |
24000 |
|
|
|
24000 |
|
|
|
24000 |
|
4 |
Merchandise inv.
1.105 |
31650 |
|
|
|
31650 |
|
31650 |
|
|
|
5 |
Prepaid
insurance |
4800 |
|
|
c-2500 |
2300 |
|
|
|
2300 |
|
6 |
Prepaid rent |
4395 |
|
|
b-2800 |
1595 |
|
|
|
1595 |
|
7 |
Store supplies |
1650 |
|
|
f-1000 |
650 |
|
|
|
650 |
|
8 |
Furniture &
fixture |
13500 |
|
|
|
13500 |
|
|
|
13500 |
|
9 |
Acc-deprec. -
furniture |
|
3000 |
|
g-1350 |
|
4350 |
|
|
|
4350 |
10 |
Office equipment |
11700 |
|
|
|
11700 |
|
|
|
11700 |
|
11 |
Acc-deprec. -
equip. |
|
4500 |
|
h-2340 |
|
6840 |
|
|
|
6840 |
12 |
Accounts payable |
|
28600 |
|
|
|
28600 |
|
|
|
28600 |
13 |
Owner's equity |
|
96000 |
|
|
|
96000 |
|
|
|
96000 |
14 |
drawings |
4500 |
|
|
|
4500 |
|
|
|
4500 |
|
15 |
Purchases |
180000 |
|
|
|
180000 |
|
180000 |
|
|
|
16 |
Sales |
|
289200 |
|
|
|
289200 |
|
289200 |
|
|
17 |
Sales ret. &
allow. |
6000 |
|
|
|
6000 |
|
6000 |
|
|
|
18 |
Purchases ret. &
allow. |
|
2500 |
|
|
|
2500 |
|
2500 |
|
|
19 |
Freight inward &
cust. |
5750 |
|
|
|
5750 |
|
5750 |
|
|
|
20 |
Sales salaries
exp. |
34200 |
|
d-2100 |
|
36300 |
|
36300 |
|
|
|
21 |
Advertising exp. |
3795 |
|
|
|
3795 |
|
3795 |
|
|
|
22 |
Delivery exp. |
2850 |
|
|
|
2850 |
|
2850 |
|
|
|
23 |
Office exp. |
3510 |
|
|
|
3510 |
|
3510 |
|
|
|
24 |
Office salaries |
3000 |
|
|
|
3000 |
|
3000 |
|
|
|
25 |
Interest income |
|
900 |
|
|
|
900 |
|
900 |
|
|
|
|
424700 |
424700 |
|
|
|
|
|
|
|
|
26 |
Rent exp. |
|
|
b-2800 |
|
2800 |
|
2800 |
|
|
|
27 |
Insurance exp. |
|
|
c-2500 |
|
2500 |
|
2500 |
|
|
|
28 |
Outstanding
sales salaries |
|
|
|
d2100 |
|
2100 |
|
|
|
2100 |
29 |
Interest
receivable |
|
|
e-200 |
|
200 |
|
|
|
200 |
|
30 |
Interest revenue |
|
|
|
e-200 |
|
200 |
|
200 |
|
|
31 |
Store supplies
exp. |
|
|
f-1000 |
|
1000 |
|
1000 |
|
|
|
32 |
Deprec. exp.
furniture |
|
|
g-1350 |
|
1350 |
|
1350 |
|
|
|
33 |
Deprec. exp.
equipment |
|
|
h-2340 |
|
2340 |
|
2340 |
|
|
|
34 |
Bad debts exp. |
|
|
i-600 |
|
600 |
|
600 |
|
|
|
35 |
Merchandise inv.
31.12.05 |
|
|
a-40000 |
|
40000 |
|
|
40000 |
|
|
36 |
Income summary |
|
|
|
a-40000 |
|
40000 |
|
|
40000 |
|
|
|
|
|
52890 |
52890 |
470690 |
470690 |
|
|
|
|
|
|
|
|
|
|
|
|
49355 |
|
|
49355 |
|
Net Income |
|
|
|
|
|
|
332800 |
332800 |
187245 |
187245 |
|