Module 6 - Worksheet and Financial Statements Part II

COLLEGE OF BUSINESS AND ACCOUNTANCY
Topic: Worksheet and Financial Statement
WORKSHEET
A worksheet is an analytical device used to facilitate the gathering of data for adjustments,
the preparation of financial statements, and closing entries.
FINANCIAL STATEMENTS
The financial statements are the end product of the accounting process. Information from
the journal and the ledger are meaningless to most users unless they are summarized and
communicated through the financial statements.
• Statement of financial position (or Balance sheet) – shows information on assets,

liabilities, and equity.
• Statement of profit or loss (or Income statement) – shows information on income and
expenses, and consequently, the profit or loss for the period.
The major processes in accounting are summarized below:

• Journalizing > Recording
• Posting > Classifying
• Financial Statements > Summarizing and Communicating
CLOSING ENTRIES
Closing entries are entries prepared at the end of the accounting period to “zero out” all
nominal accounts in the ledger. This is done so that the transactions during the period will not
commingle with the transactions in the next period.
Closing entries are prepared as follows:

1. All income accounts are debited and all expense accounts are credited. The resulting balance
is recorded in a clearing account called the “Income summary.”
2. The balance of “Income summary” is closed to the “Owner’s capital” account.
3. Any balance in the “Owner’s drawings” account is closed to the “Owner’s capital” account.
Type of Accounts contained

Columns in the Worksheet Equality of Debits and Credits
in the Columns
Real, Nominal, and mixed
1. Unadjusted Trial Balance Debits and Credits are equal
accounts
2. Adjusted Trial Balance Real and Nominal accounts Debits and Credits are equal
The difference between Debits &

3. Income Statement Nominal accounts only
Credits represents Profit/Loss
The difference between Debits &
4. Balance Sheet Real accounts only
Credits represents Profit/Loss
5. Post-Closing Trial Balance Real accounts only Debits and Credits are equal
REVERSING ENTRIES
Reversing entries are entries usually made on the first day of the next accounting period to
reverse certain adjusting entries made in the immediately preceding period.
Adjusting entries that may be reversed:

1. Accruals for income or expense
2. Prepayments initially recorded using the expense method
3. Advanced collections initially recorded using the income method
ILLUSTRATION
On January 1, 20x1, Ms. Yama Ha opened a guitar repair shop called “Guitar Doc”. The following were
the transactions during the year:
1. Ms. Yama invested P100,000 cash to business.

2. The business purchased supplies worth P60,000. Guitar Doc uses the expense method.
3. Total service fees billed to clients, on account, amounted to P400,000.
4. Total collections on accounts receivable amounted to P270,000.
5. Ms. Yama took P60,000 cash from the business.
6. Total salaries paid amounted to P180,000.
Additional Information:
1. Billy Sheehan, one of the debtors is undergoing financial difficulties. Of the total P50,000
accounts receivable from Billy Sheehan, only P40,000 is sure of collection; P10,000 is doubtful.
2. Unused supplies at the end of the period amounted to P20,000.
3. Unpaid employees’ salaries amounted to P30,000.
Requirements:
a) Provide journal entries.
b) Post the entries to the ledger.
c) Prepare the unadjusted trial balance.
d) Provide the adjusting entries.
e) Complete the worksheet up to post-closing trial balance.
f) Prepare the closing entries.
g) Prepare the balance sheet and income statement.
SOLUTIONS
Requirement (a): Journal entries
(1) Cash 100,000

Yama Ha, Capital 100,000
(2) Supplies expense 60,000
Cash 60,000
(3) Accounts receivable 400,000
Service fees 400,000
(4) Cash 270,000
Accounts receivable 270,000
(5) Yama Ha, drawings 60,000
Cash 60,000
(6) Salaries expense 180,000
Cash 180,000
Requirement (b): Posting
ASSETS
Cash Accounts receivable
(1) 100,000 (3) 400,000
(4) 270,000 60,000 (2) 270,000 (4)
60,000 (5)
180,000 (6)
Bal. 70,000 Bal. 130,000
EQUITY
Owner’s equity
100,000 (1)
100,000 Bal.
Owner’s drawings
(5) 60,000
Bal. 60,000
INCOME EXPENSES
Service fees Supplies expense
400,000 (3) (2) 60,000

400,000 Bal. Bal. 60,000
Salaries expense
(6) 180,000
Bal. 180,000
Requirement (c): Unadjusted Trial Balance (see Excel File)
Requirement (d): Adjusting entries
AJE #1: Bad debts expense

Bad debts expense 10,000
Allowance for bad debts 10,000
AJE #2: Supplies expense

Prepaid supplies (the unused) 20,000
Supplies expense 20,000
AJE #3: Salaries expense

Salaries expense 30,000
Salaries payable 30,000
Requirement (e): Worksheet (see Excel File)

Requirement (f): Closing entries
CLE #1 Service fees 400,000

Supplies expense 40,000
Salaries expense 210,000
Bad debts expense 10,000
Income summary 140,000
CLE #2 Income summary 140,000

Owner’s capital 140,000
CLE #3 Owner’s capital 60,000

Owner’s drawings 60,000
Requirement (g): Balance sheet and Income statement
Guitar Doc
Balance Sheet
As of December 31, 20x1
ASSETS
Cash ₱70,000
Accounts receivable 130,000
Allowance for bad debts (10,000)
Prepaid supplies 20,000
TOTAL ASSETS ₱210,000
LIABILITIES
Salaries payable 30,000
TOTAL LIABILITIES 30,000
EQUITY
Owner's equity 180,000
TOTAL EQUITY 180,000
TOTAL LIABILITIES & EQUITY ₱210,000
Guitar Doc
Income Statement
For the year ended December 31, 20x1
INCOME
Service Fees ₱400,000
EXPENSES
Supplies expense (40,000)
Salaries expense (210,000)
Bad debts expense (10,000)
TOTAL EXPENSES (260,000)
PROFIT FOR THE PERIOD ₱140,000

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COLLEGE OF BUSINESS AND ACCOUNTANCY

Topic: Worksheet and Financial Statement

• Statement of financial position (or Balance sheet) – shows information on assets,

The major processes in accounting are summarized below:

Closing entries are prepared as follows:

Type of Accounts contained

The difference between Debits &

Adjusting entries that may be reversed:

1. Ms. Yama invested P100,000 cash to business.

Requirement (a): Journal entries

(1) Cash 100,000

Requirement (b): Posting

400,000 (3) (2) 60,000

Requirement (c): Unadjusted Trial Balance (see Excel File)

Requirement (d): Adjusting entries

AJE #1: Bad debts expense

AJE #2: Supplies expense

AJE #3: Salaries expense

Requirement (e): Worksheet (see Excel File)

CLE #1 Service fees 400,000

CLE #2 Income summary 140,000

CLE #3 Owner’s capital 60,000

Requirement (g): Balance sheet and Income statement

TOTAL LIABILITIES & EQUITY ₱210,000

PROFIT FOR THE PERIOD ₱140,000

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