Work Sheet

“A work sheet is a working paper used by an accountant

to bring together the information used in preparing
the financial statements”
“ Work sheet is a columnar document desired to help
move data from the trial balance to the financial
statements”
“A worksheet is a multiple-column form used in the
adjustment process and in preparing financial
statements”
As its name suggests, the worksheet is a working tool.
Benefits of Work Sheet
1.Work sheet works as an aid in preparing financial
statements at the year end.
2. Where there is a need of interim financial
statements, work sheet can serve the purpose
3.Work sheet is a vital tool for ensuring the accuracy
of accounts.
4.Some times frequent decisions may be required by
the management. In this regard work sheet can help
them
Specimen of Work Sheet
Abdul Hakim & Sons
Work Sheet
For the year ended on 31st December,2013
Accounts Trial Adjustments Adjusted Income Balance Sheet
Title Balance Trial Balance Statement
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Adjustments
1.Advertising supplies on hand Tk.1000
2.Insurance expired for the month Tk.50
3.Depreciation on equipment Tk.40
4.Unearned revenue earned during October Tk.400
5. Service provided on account Tk.200
6.Interest accrued on notes payable Tk.50
7.Salaries unpaid Tk.1200
 Steps in Preparing a Worksheet
Adjusting
Journal
Entries

LO 1
Steps in Preparing the Work Sheet
1.Prepare a trial balance on the work sheet
2. Enter the adjustments in the adjustment
columns
3.Enter the adjusted balances in the adjusted
trial balance columns
4.Extend adjusted trial balance amounts in the
appropriate financial statement columns
5.Total the financial statement columns,
compute the net income and complete the
work sheet
Steps in Preparing a Worksheet
Illustration 4-1
Step 1. Prepare a Trial Balance on the Worksheet
Step 1. Prepare a Trial Balance on the Worksheet
Step 2. Enter the Adjustments in the Adjustments Columns
Adjustments
a. Advertising supplies on hand Tk.1000
b. Insurance expired for the month Tk.50
c. Depreciation on equipment Tk.40
d. Unearned revenue earned during October Tk.400
e. Service provided on account Tk.200
f. Interest accrued on notes payable Tk.50
g. Salaries unpaid Tk.1200
Step 2. Enter the Adjustments in the Adjustments Columns
Step 2. Enter the Adjustments in the Adjustments Columns
 STEP 2: ENTER THE ADJUSTMENTS IN THE ADJUSTMENTS COLUMNS
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200
Supplies 2,500 (a) 1,500
Prepaid Insurance 600 (b) 50
Equipment 5,000
Adjustments Key:
Notes Payable 5,000 (a) Supplies Used.
Accounts Payable 2,500
Unearned Revenue 1,200 (d) 400 (b) Insurance Expired.
Owner's Capital 10,000
(c) Depreciation Expensed.
Owner's Drawings 500
Service Revenue 10,000 (d) 400 (d) Service Revenue Recognized.
(e) 200
Salaries and Wages Exp. 4,000 (g) 1,200
(e) Service Revenue Accrued.
Rent Exp. 900 (f) Interest Accrued.
Totals 28,700 28,700
Supplies Expense (a)1,500
(g) Salaries Accrued.
Insurance Expense (b) 50
Accumulated Depreciation (c) 40
Depreciation Expense (c) 40
(e) 200
Accounts Receivable
(f)
Enter adjustment amounts, total
Interest Expense 50
Interest Payable (f) 50 adjustments columns,
Salaries and Wages Payable (g) 1,200 and check for equality.
Totals 3,440 3,440

Add additional accounts as needed.

LO 1
Step 3. Enter Adjusted Balances in the Adjusted Trial Balance
Columns
Step 4. Extend adjusted trial balance amounts to appropriate financial
statement columns
Step 5. Total the statement columns, compute the net income
(or net loss), and complete the worksheet
Accounting for Merchandising Operations
Service company and Merchandiser
1. Service company : Service company provides service and by this it earns
money. It does not exchange any physical commodity.
Example : A lawyer , A doctor , An engineer, A mechanic , Mobile phone
operators

2. Merchandiser : is the person or organization that engages in

buying and selling of merchandise inventory. They sell physical
commodities and make profit
Example : Wal-Mart, Agora.
 Operating Cycles
Illustration 5-2
The operating
cycle of a
merchandising
company
ordinarily is
longer than that
of a service
company.

LO 1
Expenses of Merchandising Operation : The
primary sources of revenue of a merchandiser is the sale of
merchandise.
Unlike service company, the expenses for a merchandiser are
divided into two categories :
1.Cost of goods sold : is the total cost of merchandise sold
during the period. Sales revenue minus cost of goods sold is
called gross profit on sales
2. Operating expenses : Operating expenses are expenses
incurred in the process of earning sales revenue.
Operating expenses can be of two types
 Administrative expenses : Salary of administrative
staffs, office expenses
 Selling expenses : Sales salaries , advertising expenses ,
delivery expenses
Flow of Costs

Companies use either a perpetual inventory system or a periodic

inventory system to account for inventory.
LO 1
Merchandising Operations

Income Measurement
Not used in a
Sales Less
Illustration 5-1
Service business.
Revenue Income measurement process for a
merchandising company

Equals
Cost of Gross Less

Goods Sold Profit

Operating Equals Net

Cost of goods sold is the total Income
Expenses
cost of merchandise sold during (Loss)
the period.

LO 1
Merchandise & Merchandise inventory :

“ Merchandise are the commodities that a merchandiser sells for

earning money”
Say for example, a trader is used to sell apparel. Here, the
merchandise of that trader will be apparel items.

“ Merchandise inventory is the quantity of goods on hand and

available for sale at any given time”
Or.
“ Merchandise inventory is the unsold merchandise on hand at a
given time”
Importance of Valuation of Merchandise Inventory
1.Ending inventory is deducted for the calculation of
cost of goods sold.
2.Ending inventory falls in the category of current asset.
Assets and liabilities show the financial position. So,
without valuing the inventory , we can not get financial
position
3.A business is to determine its working capital.
(Working capital = Current Assets- Current Liabilities).
4.To calculate various solvency ratios, we need to calculate
the value of inventory
5. In case of fire accident, the business is to submit claim to
insurance company. So valuation of inventory is must.

6. A business is to pay tax on its net income. To get actual net

income, business is to calculate the value of inventory
accurately.
Inventory System
Inventory system is the system used to keep the records
of inventory of the merchandiser.
Inventory system can be of two types-
 Perpetual inventory system
 Periodic inventory system
Perpetual inventory system :
“ Perpetual inventory system is a system of accounting for
merchandising transactions in which the inventory and
cost of goods sold accounts are kept up-to-date after each
sale & sales return’’
Advantages of perpetual inventory system
1.In perpetual inventory system , it is very easy to control
inventory as the account is updated after each transaction.

2.Under this system any harm to the inventory or any wastage

can be detected. So measure can be taken.
3. Any deficiency between balance in book and actual products
can be detected soon.

4.In perpetual inventory system, there is a danger limit below

which a concern is not allowed to hold inventory. So There is
no likeliness of production interruption.

5.It does not allow a concern to hold excess inventory. So money

is not delimited.

6.Under perpetual inventory system it is very easy to calculate

the cost of goods sold.

7.It is easy & fast to recover the insurance claim from the
company
Periodic inventory system : “ Periodic inventory
system is a system of accounting for merchandise in
which ending inventory at the balance sheet date is
determined by counting the goods on hand”.
PERIODIC SYSTEM
 Do not keep detailed records of the goods on hand.
 Cost of goods sold determined by count at the end of
the accounting period.
 Calculation of Cost of Goods Sold:

Beginning inventory $ 100,000

Add: Purchases, net 800,000
Goods available for sale 900,000
Less: Ending inventory 125,000
Cost of goods sold $ 775,000
LO 1
Advantages of periodic inventory system :
1. It is less costly
2. This system involves limited activities. So it is less
complex.
3.It is suitable for small business concern
Perpetual Vs. Periodic
 Free on Board
A sales agreement should indicate whether the seller or the
buyer is to pay the cost of transporting the goods to the
buyer’s place of business.
 FOB Shipping Point
1) Goods placed free on board the carrier
by seller
2) Buyer pays freight costs

 FOB Destination
1) Goods placed free on board at
buyer’s business
2) Seller pays freight costs
Accounting for Freight Costs(perpetual)
 Merchandise Inventory is debited if buyer
pays freight.
 Freight-out (or Delivery Expense) is
debited if seller pays freight.
Accounting for Merchandise under Periodic
Inventory System
1.Purchase
a. For cash purchase
Purchase
Cash
b. For purchase on account
Purchase
Accounts Payable
2.Purchase Discount( it is received during payment)
Accounts Payable
Cash
Purchase Discount
3. Purchase Return & Allowance
(If the purchaser does not pay the amount due on
purchase)
Accounts Payable
Purchase Return & Allowance
(If the purchaser paid the amount due , it would..)
Cash
Purchase Return & Allowance

4.Transportation in (FOB shipping point )

Transportation in
Cash
5.Sales
a) For cash sales
Cash
Sales
b) For credit sales
Accounts Receivable
Sales
6.Sales Return and Allowance
a)In case of credit sales
Sales Return and Allowance
Accounts Receivable
b) In case of cash sales
Sales Return and Allowance
Cash
7. Sales Discount
Cash
Sales Discount
Accounts Receivable
8. Fright Out / Carriage on Sales
Transportation Out
Cash
Accounting for merchandise under
perpetual inventory system
1. Purchase of merchandise
a) For cash purchase
Merchandise Inventory
Cash
b) For credit purchase
Merchandise Inventory
Accounts Payable
2. Purchase Return and Allowance
( If the purchaser does not pay the amount due on
purchase)
Accounts Payable
Merchandise Inventory
(If the purchaser paid the amount due , it would…)
Cash
Merchandise Inventory
3. Transportation in

Merchandise Inventory
Cash
4. Purchase Discount
Accounts Payable
Cash
Merchandise Inventory
5. Sale of Merchandise
a) (For cash sales of merchandise )
(1) For sales value
Cash
Sales
(2) Cost of goods sold
Cost of Goods Sold
Merchandise Inventory
b. (Sales of merchandise on account)
(1) For sales value
Accounts Receivable
Sales
(2) For cost of goods sold
Cost of Goods Sold
Merchandise Inventory
6. Sales Return and Allowance
a) (1) In case of credit sales
Sales Return and Allowance
Accounts Receivable
(2) In case of cash sales
Sales Return and Allowance
Cash
b)
Merchandise Inventory
Cost of Goods Sold
7.Sales Discount( paid during receipt)
Cash
Sales Discount
Accounts Receivable
8.Transportation Out
Transportation Out
Cash
 Journal Entries for
Periodic Inventory System
Solution
Journal Entries for Perpetual
Inventory System
Solution
Solution
Solution
Solution
Multiple-Step Income Statement

 Includes sales revenue, cost of goods

sold, and gross profit sections
 Additional non operating sections may
be added for:
1) Revenues and expenses resulting
from secondary or auxiliary operations
2) Gains and losses unrelated to
operations
Multiple-Step Income Statement
Operating expenses may be subdivided
into:
a) Selling expenses
b) Administrative expenses
Non operating sections are reported after
income from operations and are classified as:
a) Other revenues and gains
b) Other expenses and losses
Some items presentation in income statement

1. Income statement presentation of sales :

Income Statement
Explanation Tk. Tk.

Sales revenue:
Sales 480,000
Less: Sales return & allowance 12,000
Sales discount 8,000 20,000
Net sales 460,000
 2.Presentation of net purchase, net cost of goods purchased
and cost of goods sold In income statement (periodic
system)
Income Statement (partial)
Explanation Tk. Tk. Tk.

Beginning merchandise inventory 20,000

Purchase 160,000
Less: Purchase discount 3,000
Purchase return & allowance 7,000 . 10,000 .
Net purchase 150,000
Add: Freight in 5,000 .
Net cost of goods purchased 155,000 .
Cost of goods available for sale 175,000
Less: Ending merchandise inventory 35,000 .
Cost of goods sold 140,000
3.Gross profit and net income
Income Statement ( partial)

Explanation Tk.
Net sales 400,000
Less: Cost of goods sold 316,000
Gross profit 84,000
Less: Operating expenses 40,000
Net income 44,000
 Specimen
of
Income Statement of
Merchandising
Operations
 Single-Step Income Statement
SELLERS ELECTRONIX
Income Statement
For the Year Ended December 31, 2005

Revenues
Net sales $ 460,000
Interest revenue 3,000
Gain on sale of equipment All data are classified under 600
two categories:
Total revenues 463,600
1 Revenues
Expenses
Cost of goods sold 2 Expenses $ 316,000
Selling expenses Only one step is required in 76,000
determining net income or net
Administrative expenses loss. 38,000
Interest expense 1,800
Casualty loss from vandalism 200
Total expenses 432,000
Net income $ 31,600
 Classified Balance Sheet
In this balance sheet , merchandise inventory is reported as
current assets immediately below accounts receivable.
It is the balance sheet that reports the assets and liabilities
classifying them in to current and fixed (long term )

Sellers Electronics
Balance Sheet (partial)
December 31,2002
Current Assets
Cash 9,500
Accounts receivable 16,100
Merchandise inventory 40,000
Prepaid insurance 1,800
Total current assets 67,400
Property , Plant, Equipment
Store equipment 80,000
Less: Accumulated dep. (store equip.) 24,000 56,000
Total assets $123,400