Wednesday, July 2, 2014
MAKING OF WORKSHEET LEAD TO FINANCIAL STATEMENT
THIS WORKSHEET IS BEING PREPARED LEADING TO THE PREPARATION OF PROFIT AND LOSS STATEMENT AND BALANCE SHEET.
ALTHOUGH THIS IS AN OPTIONAL ACCOUNTING PROCESS , THIS IS A BETTER TOOL FOR ACCOUNTING STUDENTS TO LEARN THE PROCESS LEADING TO THE FINANCIAL STATMENT PREPARATION.
MAYBE , VERY FEW COMPANIES USES THIS WORKSHEET DURING THIS AGE OF COMPUTERIZATION. WHAT IS BEING USED NOWADAYS IS AFTER MAKING THE ADJUSTING ENTRIES AND POSTING TO THE GENERAL LEDGERS, THE TRIAL BALANCE CAN BE PREPARED DIRECTLY FROM THE BALANCES OF THE GENERAL LEDGER ACCOUNTS ,and at the same time the PROFIT AND LOSS STATEMENT AND BALANCE SHEET IS PREPARED .
AT ANY RATE , LET ME SHOW YOU THE FORMAT OF THE WORKSHEET.
ROMA ENTERPRISE
working paper
2014
acct. name trial balance adjustments adj. trial bal profit /loss balance sheet
dr cr dr cr dr cr dr cr dr cr
cash 200 200 200
a/rec. 150 150 150
inv. beg 200 200 0
prep insurace 60 35 25 25
rent 120 90 30 30
prepaid int. 14 4 10 10
notes rece. 60 60 60
building 500 500 500
accu.depn 5 25 30 30
acts payable 75 75 75
loans payable 100 100 100
unearned rent 72 42 30 30
sales 800 800 800
purchase 200 200
advertise 50 50 50
salaries 120 20 140 140
int. expense 36 36 36
interest income 40 55 95 95
capital 282 282 282
ret.earning 300 300 300
inventory 100 100 100
cost of sales 400 100 300 300
depn 25 25 25
salaries payable 20 20 20
insurance exp 35 35 35 35
prep rent 90 90 90
interest exp payable 32 32 32
interest receivable 55 55 55
rent income 42 42 42
profit 351 351
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total 1674 1674 803 803 1806 1806 937 937 1220 1220
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additional information.
1. the ending inventory of merchandise is 100. PERIODIC METHOD IS USED
2. building useful life is 20 years.
3. the estimated bad debts is 10% of receivable balance
4. the payroll cut of is the 25th. so there is 5 days work not recorded
5. the insurance paid was good 1 year but this is paid last august only, it was debitied to asset account
6. the rent expense was paid last october but it is covering a one year advance.
7. part of the loans payable of 70 was obtained last sept 1 with 20% the interest was deducted by the creditor in advance.
8. the other half of the loans payable of 30 was obtained last may 1 with interest of 10% payable on may next year.
8. the notes receivable was issued last february 10 at 10%, payable every feb 10 including interest.
9. the unearned rent income is a collection received last june 1 for the rent on year.
the adjusting journal entries
1. cost of sales 200
inventory beg 200
to close inventory and charge to cost of sales( presumed sold so charged to cost of sales)
cost of sales 200
purchases 200
to close purchases account and charge to cost of sales( presumed sold)
INVENTORY 100
COST OF SALES 100
to set up the actual inventory and credit to cost of sales ( all beg inv. and purchase were debited to cost of sales hence those that unsold should be credited to cost of sales.
2. depreciation expense 25
accu. depn 25
to record depn. 500 divide 20 years = 25
3. salaries 20
accrued salaries 20
salaries for 5 days
4. insurance 25
prepaid insurance 25
to record the actual insurance expense and to adjust the prepaid insurance account
60 divide 12mos =5 per month x 5 month from aug to dec =25, the prepaid exp balance must be 35
5. prepaid rent 90
rent exp 90
to adjust the over debit to rent expense, should be 30 only and to recognized the advance payment of rent of 9 months 120 divide 12 months =10 a mo. x 3 =30
6. interest expense 4
prepaid interest 4
to record the interest expense from sept to dec or 4 months , and to correct the debit to prepaid interest.
60 x 20% =12 per annum divide 12 mos x 4 months = 4 pesos,
7. interest exp 32
interest exp payable 32
to accrue the interest of the 40 loans payable obtained last may 1 but payable on may next year.
40 x 10% =4 x 8 mos -32.
8. interest receivable 55
interest income 55
to record the interest income accruing from feb 1 to dec 31 but collectibe on feb 1 next year
60 x 10% =6 divide 12mos x 11 months =55
9. unearned rent income 42
rent income 42
to record the actual rent income from june 1 to dec and to adjust the unearned income acct.
72 divide 12= 6 a month x 7 mos 42
=
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I think all adjustment can be easily understood , what is difficult to understand maybe is the cost of sales thing, especially the method where the beg inventory and the ending inventory is closed to INCOME AND EXPENSE SUMMARY and the purchases account is left open.
you may asked , if this is the entry , no cost of sales account can be seen in the profit and loss statement. There is no problem with that because , in the preparation of the profit and loss especially how is cost of sales , it is not required that the cost of sales shall come from the ledger of cost of sales. the cost of sales in the profit and loss are just mathematically computed as ff:
income and expense summary 300
purchases 100
cost of sales 400
this will be the presentation of the P/L if you will based on ledger account BUT , IF YOU ARE THE ACCOUNTANTS YOU WILL PREPARE IT THIS WAY.
BEG INVE 600 debited to income exp. summ
PURCHASES 100
END INVENT. 300 credited to income exp summ.
COST OF SALES 400
You may also asked also that how come in another method , PERPETUAL METHOD, the beg. inventory and purchases are debited in total to cost of sales while we are not sure that it was sold.\
this is is just an assumption that all the beg inventory, and the purchases were sold, BUT , TAKE NOTE THAT IN THE EVENT THAT THERE WILL BE A REMAINING INVENTORY , THAT OUTRIGHT DEBIT TO COST OF SALES OF BEG INV. AND PURCHASES SHALL BE CORRECTED BECAUSE THE ENTRY ON THE END INVENTORY IS
INVENTORY 300
COST OF SALES 300
that means the unsold portion that was part of the debits to cost of sales is now corrected because it was already credited as shown by the entry above.
LET ME MAKE A PROBLEM RELATIVE TO THIS COST OF SALES.
1. The cost of sales is 300 and the ending inventory is 200, how much is the total beg inventory and purchases or the available for sale.
2. the inventory for sale that is available is 200, how much is the cost of sales if the end inventory is 50.
after you have finished this worksheet, the PROFIT AND LOSS STATEMENT AND THE BALANCE CAN NOW BE PREPARED USING THIS WORKSHEET OR USING THE GENERAL LEDGER BALANCES WHICH MUST BE THE SAME AMOUNT WITH THE WORKSHEET.
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THE CLOSING OF ALL NOMINAL ACCOUNTS OR THE PROFIT AND LOSS ACCOUNTS OR THE INCOME AND EXPENSE ACCOUNT
1. all income accounts shall be debited and credit in total to INCOME AND EXP SUMMARY .
2 all expense and cost shall be credited and debited to income and expense summary.
3. after all these entries are made the income and expense accounts are all in zero balance .
4. the income and expense summary account has a balance or no balance .\
5. if the income exp summary has a credit balance , that means it is the profit , if it has a debit balance there is a loss, if no balance , its break even.
6. any balances of the income exp. summary shall be closed to RETAINED EARNINGS..
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