Accounting: The Language of Business - Vol. 2 (Intermediate: Part 41)

In the end, alchemy, whether it is metallurgical or financial, fails. A base business can not be transformed into a golden business by tricks of accounting or capital structure. The man claiming to be a financial alchemist may become rich. But gullible investors rather than business achievements will usually be the source of his wealth.

Warren Buffett

Review of the Accounting Cycle (Part R)

by

Charles Lamson 

Example 4B.1 illustrates worksheet preparation.

EXAMPLE 4B.1 Worksheet Preparation

PROBLEM: Enzo Educational Services provided the following unadjusted trial balance as of December 31 of the current year:

In addition, note that:

1. Depreciation for the year is $27,500.

2. $8,000 of wages has accrued for the last pay period of the year to be paid on January 2. 

3. The company rented equipment on account for $3,500 on December 15 and used the equipment for two weeks. The company has not recorded the event as of the date of the trial balance.

4. There should be $30,000 remaining in the prepaid insurance account.

Prepare the worksheet for Enzo Educational Services.

Enzo first enters the unadjusted trial balance on the worksheet, followed by the age in the adjustments column. Enzo then computes the amounts for the adjusted trial balance. For example, the unadjusted balance for prepaid insurance is a debit of $40,000. An adjusting journal entry credits the account for $10,000, leaving a $30,000 debit adjusted balance.

Next, Enzo extends each amount from the adjusted trial balance to either the income statement or balance sheet columns. The income statement columns initially will not balance---the difference (revenues less expense) is the net income on that loss for the period. Likewise, the balance sheet will not balance because the balance in retained earnings is the beginning balance, not the ending balance. Here as well, the difference between the debit and credit columns is the net income or net loss amount. 

SOLUTION:

Letters (a) through (d) are used to cross-reference to the additional information provided in the illustration.

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 163-167*

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