The worksheet is not a formal step in accounting cycle; it is the rough work.
It is the paper work.
It is prepared by accountant regarding adjustment entries.
Therefore, it is called scratch pad.
It is prepared at end-of-period for preview of the financial statements.
Work sheet is also known as extended trial balance (ETB).
This terminology is quite popular in British Accounting Literature.
Generally, the work sheet is used for the following purposes:
(a) It permits the accountants to see the effects of adjusting entries without formal accounting records.
(b) This is particularly useful to change the estimates and make any corrections needed.
(c) It helps to the management and accounts to preview the possible financial statements before they are actually prepared.
(d) It serves as the basis for making the adjusting and closing entries in the accounting and
(e) It has become very popular as a basis for preparing the interim financial statements
The basic objective of work sheet is to provide necessary information to prepare financial statement. Other major objectives are as follows:
· To check arithmetical accuracy of the transactions.
· To record adjustment entries in the financial statement.
· To know the operating result of the organization.
· To know the financial position of the business.
· To collect all financial information in one single paper.
There are two types of formats of worksheet; they are 10 column worksheet and 12 column worksheet.
In 10 column worksheet, there is not profit and loss appropriation account or retained earning account.
Twelve Columns Work Sheet
Particular |
Part 1 |
Part 2 |
Part 3 |
Part 4 |
Part 5 |
Part 6 |
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Trial Balance |
Adjustments |
Adjusted Trial Balance |
Income Statement |
P/L Appn Account |
Balance Sheet |
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Dr |
Cr |
Dr |
Cr |
Dr |
Cr |
Dr |
Cr |
Dr |
Cr |
A |
L |
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Part 1: It is the unadjusted trial balance part.
Part 2: It is the adjusting entries part. To understand properly, journalize the adjustment.
Part 3: It is the adjusted trial balance part. It is the total of trial balance and adjustment.
Part 4: It is the income statement part. It is the combination of trading account and P&L account.
Part 5: It is the P&L appropriation. It is also called retained earning account.
Part 6: It is the balance sheet. Debit is assets and credit is liabilities.
Step 1: Write debit balance of ledgers in debit side and credit balance of ledgers in credit side.
Step 2: Write adjustment entries two times i.e. one entry in debit side and another entry in credit side.
Step 3: Now, unadjusted trial balance and adjustments are added or subtracted to adjusted trial balance.
Step 4: both debit and credit sides are added to find out equal.
Here, debit and debit |
= add Dr 100 + Dr 80 |
= Dr 180 |
Credit and credit |
= add Cr 50 + Cr 40 |
= Cr 90 |
Debit and credit = write more amount as debit or credit Dr 80 and Cr 30 = Dr 50 |
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Credit and debit = write more amount as debit or credit Cr 70 and Dr 40 = Cr 30 |
Step 5: From adjusted trial balance, transfer amount into income statement, P&L appropriation and balance sheet respectively,
Step 6: After transferring the entire amount into related place, find out net profit or net loss from income statement,
Step 7: Transfer net profit into credit side of P&L appropriation account (if net loss, transfer into debit side)
Step 8: After transferring the net profit or net loss, find out surplus or deficit from P&L appropriation account,
Step 9: Transfer surplus into liabilities side of balance sheet (deficit into assets side of balance sheet),
Step 10: Do the sum of balance sheet. Assets and liabilities must be equal.
We should prepare 12 columns work sheet on following conditions: |
When profit and loss appropriation account, net profit last year, provision for tax last year, interim dividend etc are given in trial balance |
or |
Proposed dividend, general reserve etc are given in adjustment, |
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Journal Entries for Adjustment
Bad debts on debtors or credit sales |
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Amortization/write off on Intangible assets |
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Bad debts account |
Dr |
Amortization/ write off account |
Dr |
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To Debtors (B/R, A/R) account |
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To Intangible assets account |
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(Being – bad debts on debtors) |
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(Being – intangible/fictitious assets write off) |
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Provision for bad debts |
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Advance income received |
Dr |
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Provision for bad debts account |
Dr |
Income^ (by name) account |
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To Debtors (B/R, A/R) account |
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To Advance income^ account |
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(Being – provision for bad debts on debtors) |
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(Being – income received in advance) |
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Bad debts received which was written off |
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Expenses expired from advance |
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Cash/bank account |
Dr |
Expenses expired account |
Dr |
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To Bad debt (recovered) account |
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To Advance expenses account |
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(Being – bad debts received from debtors) |
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(Being – expenses expired from advance) |
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Depreciation charged on assets |
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Goods lost by fire or theft |
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Depreciation account |
Dr |
Insurance claim account |
Dr |
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To Assets (by name) account |
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Profit and loss account |
Dr |
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(Being – depreciation charged on assets) |
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To Purchase account |
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(Being – goods destroyed by fire) |
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Appreciation on assets |
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Closing stock |
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Assets (by name) account |
Dr |
Closing stock account |
Dr |
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To Appreciation account |
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To Trading account |
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(Being – appreciation on assets) |
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(Being – closing stock recorded) |
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Expenses outstanding, payable or due |
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Proposed dividend |
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Expenses* (by name) account |
Dr |
P&L appropriation account |
Dr |
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To Outstanding expenses* account |
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To Proposed dividend account |
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(Being – expenses due, payable, outstanding) |
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(Being – proposed dividend payable) |
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Prepaid/advance expenses paid |
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Provision for tax |
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Prepaid expenses# account |
Dr |
P&L account |
Dr |
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To Expenses# |
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To Provision for tax account |
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(Being – expenses paid in advance) |
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(Being – tax payable) |
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Accrued income (income earned but not received) |
Transfer to reserve and fund |
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Accrued Income+ account |
Dr |
P&L appropriation account |
Dr |
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To Income+ account |
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To General/capital reserve |
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(Being – income earned but not received) |
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(Being – transferred to reserve and fund) |
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