Grade 12 Account Note
Worksheet is a working paper of 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 accountant outside the accounting system.
Objectives of worksheet
The objectives of worksheet are as follows:
To preview the possible adjustment entries in the financial statements.
To facilitate the work of making adjusting and closing entries.
To make possible the preparation of interim statement.
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:
i)Preparation of trial balance before adjustment.
ii)Incorporation of adjustments in worksheet.
iii)Preparation of adjusted trial balance.
iv)Preparation of financial statements which are:
b)Statement of retained earnings
Unadjusted trial balance
Unadjusted trial balance is a first part of work sheet, just like a trial balance.The trial balance which is prepared before the adjusting entries is called 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.
It is the second part of work sheet 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 work sheet which is combination of unadjusted trial balance and adjustment column.A trial balance prepared by incorporating adjustments is called adjusted trial balance. The adjusted trial balance is a compiled worksheet of adjustments. A new account balance is obtained in adjusted trial balance. The total of debit and credit of adjusted trial balance should always remain equal.
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)
Income statements(Profit and loss)
It is the fourth part of work sheet where all incomes and expenditures are recorded. It is the permutation of trading account and profit and loss account. The balance of revenues and expenses listed in the adjusted trial balance are 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 work sheet where includes 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 earning, which is carried to the 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 balance sheet should always remain equal.
Recording of adjustment entries
Adjustment entries refer to the information about the additional transaction, which are 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 debit and credit columns of the adjustment.
Outstanding expenses: It is shown on 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.