Professional Documents
Culture Documents
Specific Learning Outcome (ULO) Week 8 : At the end of the unit, you are expected to:
BIG PICTURE IN FOCUS: ULO (g) Prepare worksheet and financial statements (SFP and
I/S)
METALANGUAGE
Accountants usually use worksheet for easy transfer of data from the adjusted trial balance to the
financial statements. The previous lessons (preparation of AJE) will complete the data needed in
the preparation of worksheet. This section provides essential terms that you will encounter in the
preparation of worksheet and financial statements. You need to possess full understanding of the
terms for you to demonstrate ULO(g).
1. Worksheet – is a working paper that summarizes the data from the General Ledgers to
facilitate the preparation of financial statements. This document is prepared when the
accountant is now ready to make some adjustments of the figures that appears in the
unadjusted trial balance. Actually adjusting entries and worksheet are prepared
simultaneously. For companies with few accounts it is possible to prepare financial
statement directly from the adjusted trial balance.
2. Unadjusted Trial balance – this is the summary of the recorded data from the journal.
The purpose of this document is to prove the equality of debits and credits prior to the
next step of the accounting process. This document will help the accountant identify
those accounts that requires adjustments.
3. Adjusted trial balance- this a trial balance prepared after posting/plotting the adjusting
journal entries on the worksheet. This will also serve as a go signal to the bookkeeper to
record the adjusting entries in the general journal and post to GL. The purpose of
determining the adjusted balance is to facilitate easy transfer of data to the FS.
Therefore, the balances of the adjusted trial balance 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.
ESSENTIAL KNOWLEDGE
HOW TO PREPARE A WORKSHEET?
Preparation of worksheet is the step 5 of the accounting cycle. There are 5 steps in the
preparation of worksheet. Use 10-columns worksheet.
Important Reminder: 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;
1
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
(b) name of the document (worksheet); (c) date. You will also put label on the 10 columns;
first 2 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. Below is a sample for
your reference
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. See sample below.
2
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
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.
3
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
In computing the adjusted balance, for each adjustment you are going to cross-foot the figures.
In the above example (a) prepaid insurance has a debit balance of P12,000, in the adjustment
column it has a credit entry of P4,000 therefore the balance is P8,000 (P12,000-4,000) placed on
the debit side of the adjusted trial balance column because the debit (12,000) is greater than the
credit (P4,000), so the balance is a debit balance of P8,000. The same computation you are going
to make in “Parlor Supplies”. What happen if the unadjusted trial balance the account is credited
and the adjustment is also credited ? This is illustrated below.
In the illustration, accumulated depreciation bldg. is a credit balance with a credit adjustment.
These two figures if combine shall generate a credit balance of P50,000 (P50,000 + P25,000). This
amount shall be placed on the credit side of the adjusted trial balance. The “unearned revenue of
P50,000 has balance placed on the credit side of P50,000 (P50,000 – P10,000)
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. THE COMPLETE WORKSHEET IS
ILLUSTRATED BELOW
4
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
There are two forms of income statement, the single-step form for the service concern and the
multiple-step form for the merchandising or trading concern. The statement of financial position
has also two forms, the report form and the account form. The most popular form used by
preparer is the report form (which can be presented in comparative or non-comparative form).
COMPLETED WORKSHEET
5
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
6
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
The above data is use to answer Activity 19.(see questions on Activity 19)
Take note that the Statement of Financial Position and Income statements can also be presented
using the line items if there are numerous accounts. Similar accounts can be grouped into line
items and has to be supported by a schedule. In the above illustration, since there are few
accounts, line items is not used.
7
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
8
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
This means that from the total assets of the company (P773,310), P328,000 is owned by the
creditors and only P445,310 is the claim of the owner.
SUMMARY
The adjustment process is a key element of accrual basis accounting. The worksheet helps in the
identification of the accounts that need adjustments.
1. The income statement reports all income and expenses during the period. The profit or
loss is the final figure in this statement.
2. The statement of financial position reports the ending owner’s equity taken directly
from the statement of changes in equity.
3. The statement of changes in equity considers the profit or loss figure from the income
statement as one of the determining factors that explains the changes in owner’s
equity.
4. The worksheet is a document that summarizes all data recorded in the journal and the
ledgers and facilitate the preparation of financial statements.
The end product of the accounting process are the financial statements. Accounting cycle has nine
(9) steps. We completed the first 6 steps, Preparation of journal entries, Classifying or Posting,
Preparation of Trial Balance, Adjusting Entries, worksheet preparation and the financial
statements. The remaining steps will be discussed in the next lesson.
SELF HELP: You can also refer to the sources below to help you understand the lesson
Ballada, Win & Ballada, Susan (2019), Basic Financial Accounting and Reporting.
Sampalok Manila: Domdane Publisher & Made Easy Books.
Heintz, James A. (2017). College Accounting 22nd Edition. Australia: Cengage
Learning
Philips,Fred (2016). Fundamentals of Accounting. McGraw Hill Education
Warren, Carl S.(2016). Accounting 26th Edition. Australia: Cengage Learning
Wild, John J. (2016). Fundamentals Accounting Principles. New York NY: McGraw
Hill Education
9
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
KEYWORDS INDEX
1. Requisites of goof form financial statements
2. Steps in worksheet preparation 8. Real Accounts
3. Adjusted Trial Balance 9. Nominal Accounts
4. Footing 10. Income Statement
5. Cross-footing 11. Statement of Financial Position
6. Single-step format 12. Statement of Changes in Equity
7. Report Form
SCHEDULES
Activity Date of Submission Where to Submit
Let’s Check : Activity 17 TBA
Let’s Analyze: Activity 18, TBA
19, 20
In a Nutshell: Activity 21 TBA
In a Nutshell: Activity 22 TBA
Q&A TBA
64
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
Specific Learning Outcome (ULO) Week 9: At the end of the unit, you are expected to:
BIG PICTURE IN FOCUS: ULO (h) Prepare closing entries, post-closing trial balance
and reversing entries
METALANGUAGE
In this section, the most essential terms encountered in the completion of accounting cycle and to
demonstrate ULO (h) will be operationally defined to establish a common frame of reference as
how these terms are used in the accounting process.
Please proceed immediately to the “Essential Knowledge” because the terms will also be
discussed in that section.
ESSENTIAL KNOWLEDGE
After the preparation of financial statements some of the accounts, (temporary in nature) has to
be closed at the end of the accounting period. Only those permanent accounts (real) are
forwarded to the next accounting period and another cycle of recording, classifying and
summarizing has to be performed. That’s why it is called cycle because of its repetition
characteristics.
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.
2. Credit all nominal accounts with normal debit balance. (All expenses have normal debit
balance therefore this account should be credited in closing entries.)
65
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
3. Close the income summary account to capital. The balance of the income summary
account is a credit balance of PP245,310 (P1,190,300. – P944,990).
Ex. Income Summary................P245,310
Charisma capital...................P 245,310
To close income summary to capital
4. Close the withdrawals to capital account
Ex. Charisma capital..............P50,000
charisma withdrawals........P50,000
To close withdrawals to capital
Record the Closing Entries in the General journal, then post to their respective General Ledger.
After posting you will notice that the account is already close because the total debit is now
equal to the total credit. The income summary account is also close because this is a temporary
account.
Post-closing Trial Balance (8th step of the accounting cycle) see sample below
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.
66
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
SELF HELP: You may also refer to the sources below to help you further understand the lesson
Ballada, Win & Ballada, Susan (2019), Basic Financial Accounting and Reporting.
67
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
Sampalok Manila: Domdane Publisher & Made Easy Books.
68
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
KEYWORDS INDEX
4. Requisites of goof form financial statements
5. Steps in worksheet preparation 13. Real Accounts
6. Adjusted Trial Balance 14. Nominal Accounts
8. Footing 15. Income Statement
9. Cross-footing 16. Statement of Financial Position
10. Single-step format 17. Statement of Changes in Equity
11. Report Form
SCHEDULES
LET’S CHECK
Activity 17. Now that you have completed the worksheet which is an important device in the
preparation of financial statements, let us check your understanding of the terms discuss in
this lesson. In the space provided, identify what is being described in the statement.
1. A entry will increase allowance for doubtful accounts.
2. Salaries Expense is found on the income statement, while salaries payable can be found
on .
3. Cost of depreciable asset (Equipment) less equals the carrying value.
4. This is a term in accounting which means to add or deduct horizontally. .
5. This is a term in accounting which means to add vertically. .
6. Owner’s withdrawal normally appears in column of the worksheet.
7. If the performance of the business is a net profit this figure will appear in and
of the worksheet. (the answer must indicate the column and name of FS)
8. a statement showing the financial condition of the entity.
69
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
9. a statement showing the performance of the entity.
10. The figures that appear in the are the amount extended on the income
statement and balance sheet of the worksheet.
11. Unearned Revenue normally appears on the
must indicate the column and name of FS)
70
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
12. If the sum of the revenues is smaller than the sum of the expenses, the result is
13. One of the indicators that your worksheet is correctly done, the difference between the
total debit column and the total credit column of the income statement shall equal to
the difference of the total debit column and total credit column of .
14. Recognition of accrued expenses such as taxes expense will increase and
account.
15. An adjustment to transfer the used or expired portion of a Prepaid Expense will result to
an increase in and decrease in .
LET’S ANALYZE
Activity 18. Identifying those terms is not enough you have to show your understanding by
applying those terms in the preparation of worksheet. Listed below are the ledger accounts
appearing in the adjusted trial balance columns of the worksheet. On space provided, indicate
in which column of the worksheet the amount in each account would be extended. Ex. Cash,
Activity 19. In this activity you will assemble the data in order for you to prepare an
Income Statement and Statement of Changes of Equity of Dr. Ngephon a dentist for the
month of September 30, 2019.
Additional Information:
71
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
On Sept. 1 , 2019, Dr. Ngephon capital balance beginning is P260,000. He made an additional
investment of P15,000 and made withdrawals for personal use amounting to P350,000.
3. What could have been her ending capital balance, if she withdrew P250,000 only?
72
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
ACTIVITY 21
The trial balance of RUBANS Survey Specialist is presented below:
RUBANS SURVEY SPECIALIST
TRIAL BALANCE
MAY 31, 2021
DEBIT CREDIT
CASH 210,000
ACCOUNTS RECEIVABLE 930,000
PREPAID ADVERTISING 360,000
ENGINEERING SUPPLIES 270,000
SURVEY EQUIPMENT 1,890,000
ACCUM. DEPRECIATION-SURVEY
EQPT 640,000
ACCOUNTS PAYABLE 190,000
UNEARNED SURVEY REVENUES 120,000
NOTES PAYABLE 500,000
RUBANS CAPITAL 1,120,000
RUBANS DRAWING 700,000
SURVEY REVENUES 6,510,000
SALARIES EXPENSE 3,270,000
RENT EXPENSE 960,000
INSURANCE EXPENSE 250,000
UTILITIES EXPENSE 160,000
MISCELLANEOUS EXPENSE 80,000
TOTAL 9,080,000 9,080,000
REQUIREMENTS:
73
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
ACTIVITY 22
You are required to : 1. Prepare the worksheet
2. Prepare Financial Statements(Income Statement, Statement of Financial
Position, and Statement of Changes in Equity).
74
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
LET’S CHECK
Activity 23. You have now completed the nine steps of the accounting cycle. Let check
your understanding on the last 3 step of the accounting process by answering the questions
below. On the space provided identify the term being described or determine the correct
procedure done in closing entries.
1. procedure done at the end of the period to close temporary accounts.
2. In closing revenue we simply and income summary.
3. In closing withdrawals account it is place on and capital
account.
4. In closing expenses account the entry is the individual expenses and
income summary.
5. When income summary resulted to a credit balance this means that is greater
than .
6. A trial balance comprise of permanent accounts is called .
7. If revenue is less than the expenses, then income summary will result to a balance.
8. What account that absorbs the movement of revenue, expenses and withdrawal in a
closing entry? .
9. The balance of the Income Summary after closing the Revenue and Expenses is a credit
balance, this means the performance of the entity is a .
10. If the entity incurred a net loss, the Income Summary account will be closed by a
and capital will be placed on the .
75
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
ACTIVITY 24
In this activity you need to identify the adjusting entry that can be reversed at the start of the
next accounting period. Write the reversing entry (if applicable) or “NO RE” if not applicable.
76
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
LET’S ANALYZE
Activity 25. Knowing the sequential step of the accounting cycle is not enough. But the most
important part is how this knowledge can be used to analyze an account and develop a more
comprehensive understanding of the process. For example a capital account ledger. Capital is a
permanent account and this is used throughout the year because it explains the movement (in and
out) of the capital or equity of the owner.
I have done the analysis of the capital ledger, below is a ledger of an account “Income Summary” with
an entry on the debit (Left) and credit (right) side of the account give your analysis by answering
questions 1 to 4.
77
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
IN A NUTSHELL
YOUR TURN
Activity 26. We all know that the purpose of accounting is to provide quantitative information
of the business entity. In gathering this information accounting process follows a sequential
procedures in accumulating this information. In this activity you will demonstrate your
understanding of the accounting cycle by answering a comprehensive problem.
Prepare journal entries with brief explanation to record the following transactions. Use the chart of
account below. In posting follow the general ledger format below. Write your journal entries, trial
balance, Financial statements, closing entries and post closing trial balance in a clean sheet of paper
(preferably journals). Do not forget to post the adjustments and closing entries in the general ledger.
Jay Omotoy opened a plumbing service, Alabang Plumbing. Operations began on April 1, 2019, and the
following transaction were completed during the month.
April 1 – Withdrew P67,000 from a personal savings account and used it to open a new account in the
name of Alabang Plumbing.
April 2 – Acquired a service vehicle costing P81,000. A payment of P17,500 in cash was made and a
noted was issued for the balance of P63,500.
April 3 – Paid rent for the month , P 7,150.
April 6 – Acquired plumbing supplies on account for P15,700.
April 7 – Paid for three months of advertising and use the asset approach in recording the payment
P6,000.
April 8- Cash in the amount of P18,350 was received for plumbing services rendered.
April 9 – Acquired additional plumbing supplies for cash P8,050.
April 11- Paid salaries P11,600
April 15- Rendered plumbing services and billed the customer for P42,200.
April 16- Paid P5,700 of the amount owed from the transaction of April 6.
April 19- Paid miscellaneous expenses, P4,300.
April 20- Collected P21,000 from the customer on April 15 transaction.
April 21- Withdrew P14,500 from the business.
April 22 – Paid the salaries of workers P14,100.
April 24 – Paid the 1st installment of the note payable P3,850.
April 25 – Paid telephone subscription P1,500.
April 27- Billed the Clement Resort for plumbing services rendered P 14,150
April 29 – Received from customer amounting to P50,000 for services to be rendered in the future.
CHART OF ACCOUNT
Cash; Accounts Receivable; Plumbing Supplies; Prepaid Advertising; Service Vehicle; Notes Payable;
Accounts payable; Unearned Plumbing revenues; accrued expenses; Salaries Payable; Omotoy Capital;
Omotoy withdrawals; Plumbing Revenues; Salaries Expense; Rent Expense; Telephone Expense;
78
College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City Phone
No.: (082)300-5456 Local 137
Miscellaneous Expense; Light and Power; Depreciation Expense; Advertising Expense
ADD'L INFORMATION
1 Light bills for April was not paid amounting to P3,800
2 Prepaid advertising is for 3 months.
3 Salaries of 1 worker was not paid amounting to P5,000
4 Only one-fourth of the unearned revenue was earned.
5 Service vehicle has an estimated life of 5 years without salvage value.
6. Unused plumbing supplies amounted to P14,700.
79