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Accounting - Chapter 8 Highlights - Coggle Diagram
Accounting - Chapter 8 Highlights
8.1
Six Column Worksheet
What is it?
An informal business paper used to organize and plan information from the financial statements. This business paper shows the trial balance, income statement and balance sheet side by side.
The six column worksheet only represents control accounts, which is the sum of the balance. This means that there will be one account for accounts such as accounts payable.
Prepares you for the eight column worksheet
Format
Steps
Write the company name in the left
Write worksheet in the center
Indicate the fiscal period in the right
Complete the trial balance columns
Copy all of the balance sheet accounts information into the debits and credits columns
Copy the income statement account amounts in the appropriate columns
Total the columns and underline the top of the cells. Remember to only double underline the trial balance totals.
Further calculations are only done for the income statement and balance sheet accounts
Subtract the bigger total by the smaller amount and find the difference. This will be recorded under the smaller total (both difference should be equal, otherwise there is an error).
Record the net income/loss (difference)
If the income statement credit value is greater than the debit value, it is net income and vice versa
Add the amount above and net income/loss and record it below as a final total following the balance sheet underlining (both final totals should be equal
Adjustments
Why adjustments happen?
People usually follow accrual accounting which means that they record the revenues and expenses when they occur even if the amount is received or paid. Nobody follows cash basis accounting, which means to record the amount once it is paid or received.
Example
If the supplies are initially worth $500 on November 1 and are worth $200 on November 30, the adjustment would be of $300.
In the supplies t-account, $300 would be credited and the we would be left with a total of $200, the real amount.
This would then be recorded as an adjusting entry in the general journal for November 30
8.2
Eight Column Worksheet
An informal business paper used to organize and plan information from the financial statements. This business paper shows the trial balance, adjustments, income statement and balance sheet side by side.
Format/Steps
Write the company name at the left margin
Write worksheet in the center
Write the period of time at the right margin
Complete the trial balance debit and credit columns
Record all of the adjustments made earlier to the credit and debit columns. If a certain account is not written, it must be written below (leave one row above for the trial balance total) Remember to journalize the adjusting entries on the general journal.
Total the adjustment columns (both of them should be equal). Same underlining rules should be followed for the totals.
Copy the balance sheet and income statement accounts from the trial balance to the appropriate debit and credit columns
According to the adjustments, subtract the initial amount in the trial balance and the adjustment amount. Transfer the value found to ONE of the balance sheet or income statement columns.
Follow the remaining steps for the income statement and balance sheet columns explained for the six column worksheet
8.3
Preparing For New Fiscal Years
Closing accounts
Only temporary/nominal accounts are closed, which means that they are not carried into next year (the balance is zero)
These accounts include all income statement accounts and drawings account
Closing entries also include a new "Income Summary" account, which is used to transfer the revenue and expense accounts
Order of Closing
Revenue (Debit - Revenue, Credit - Income Summary)
Expense (Debit - Income Summary, Credit - Expense)
Income Summary (Debit - Net Income, Credit - Capital) vice versa for net loss
Drawings (Debit - Capital, Credit - Drawings)
Record the closing entries in the general journal
Example
Post-Closing Trial Balance
Make sure all of the nominal accounts are closed, everything is balance and only the assets, liability and capital account amounts are still there
8.4
Adjusting For Depreciation
Depreciation/Amortization
An expense account on the income statement, which is an allocation of the cost of a fixed asset in the fiscal period it was used.
Accumulated Depreciation
The decrease in the asset value is shown on the balance sheet through a contra account, an account that decreases the value of another account
Book Value = Asset Account - Asset Contra Account
Calculate Depreciation
Straight Line Method
Depreciation = (Original Cost - Salvage Value) /Life of The Asset
Salvage Value = estimated resale value at the end of its life
Declining Balance Method (used in Canada)
