Chapter 6 Notes March 02, 2010

Accounting Concept
Consistent Reporting-the same
Work Sheet for a accounting procedures are followed in
the same way in each accounting period
Service Business Why?
• Info can be compared year to year.
• Info analyzed, summarize, &
reported in meaningful way.

Accounting Period? Accounting Concept #2

Accounting Period Cycle-changes in
Fiscal Period (Accounting Period)-
financial information are reported for a
length of time for which a business
specific period of time in the form of
summarizes and reports financial info.
financial statements.
• typically 1 year Why?
• usually starts at slow time • Info can be compared from period
• we use one month periods to period.

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Chapter 6 Notes
Work Sheet-a columnar accounting form used
to summarize the general ledger info needed
to prepare financial statements
• a temporary accounting record
• written in pencil
Before we begin...
• Heading-who, what, & when
• Trial Balance-a proof of the equality
of debits and credits in a general
ledger
Accounting1
March 02, 2010
Four reasons for completing a work sheet:
• Summarize general ledger balances and to prove the
equality of debits and credits. (and find mistakes)
• To plan needed changes to GL accounts to bring
account balances up-to-date.
• To separate GL account balances
according to the financial statements to
be prepared.
• To calculate the net income/loss for a
fiscal period.
Accounting Concept #3
Matching Expenses with Revenue-when
revenue from business activities and
expenses associated with those activities
are recorded in the same accounting period
Huh?
Record the value of expenses used
this month in this month.
Chapter 6 Notes March 02, 2010

Balance Sheet-financial statement that

Adjustments-changes recorded on a work
reports assets, liabilities, and owner's equity
sheet to update general ledger accounts at
on a specific date
the end of a fiscal period
Income Statement-financial statement
• Supplies showing the revenue and expenses for
• Prepaid Insurance a fiscal period

Net Income-when the total revenue is

greater than the total expenses

Finding Mistakes
Net Loss-when the total expenses are
greater than the total revenue

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Chapter 6 Notes March 02, 2010

Errors found on work sheet must be

When two column totals do not
corrected before further work is completed!
balance...
• Errors in permanent records should
be crossed out and corrected. 1) Subtract the smaller total from
the larger total.
• Errors in temporary records should
be erased and corrected. 2) Check the difference between
the two amounts.

The difference... The difference...

...is 1 ($0.01, $0.10, $1.00, or $10.00) ...can be divided evenly by 2 (it's even)

• Divide by two, look for that

answer in the debit/credit columns
• The error is in addition.
• If found, make sure amount is in
• Add the columns again.
right column.
• If not found, check ledger
accounts, too.

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Chapter 6 Notes March 02, 2010

The difference... The difference...

...can be divided evenly by 9 ...is an ommitted amount.

• Transposition • Look for an amount equal to the

(wrote $45.00 instead of $54.00) difference.
• Slide • Check work sheet, accounts, and
(wrote $12.00 instead of $120.00) journals to see that amount was
handled correctly.

Correcting Errors Preventing Errors

• Most errors occur during arithmetic.

• Use a calculator.
See pages 168-169.

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