Small-business owners understand that the creation of an accounting worksheet ensures the tasks involved in developing the company’s financial statements become much easier. Worksheets also help accountants make sure the data in those statements is accurate and up to date. Each section of the worksheets must be divided into debit and credit columns. The totals of the debit and credit columns in each section must be equal to verify the accuracy of the record-keeping process.
1. Accounts And Trial Balance
The left column of the worksheet contains the list of accounts the company tracks for its records. The accounts are listed on the worksheet in a specific order: assets, liabilities, equity, revenue and expenses. As the accountant lists each item in the worksheet, he will also include its “trial balance.” The trial balance is the unadjusted account balance for each entry. Asset and expense entries go in the debit column, while liability, equity and revenue amounts are entered in the credit column. The trial balance also checks for mathematical errors in the double-entry system, in which equal amounts are entered in the debit and credit columns when recording a transaction.
2. Adjustments And Adjusted Trial Balance
The trial balance amounts often require adjustments to reflect accurate values. The next two worksheet sections show the amount of each adjustment and the adjusted trial balance. The adjustment procedure starts with an inspection of each account balance in the unadjusted trial balance columns. If the inspection indicates that the account balances are inaccurate, those balances are modified to more sensible amounts. For instance, if the trial balance for company revenue shows $47,000, but that balance does not reflect a $3,000 sale from last week, the worksheet will show a $3,000 adjustment for revenue and a $50,000 adjusted trial balance.
3. Income Statement
The income statement section of the worksheet carries over the revenue and expense rows from the adjusted trial balance section. Expenses can include worker salaries, equipment depreciation, advertising costs and interest expenses. If the revenue amount exceeds the total amount for all expenses, the difference is recorded in the debit column as “net income.” If the expenses exceed the revenue, the difference is recorded in the credit column as “net loss.” The recording of income and loss ensures that the debit and credit column totals remain equal.
4. Equity Statements
The next section of the worksheet shows the amounts used in the ownership equity statements. This statement shows any changes in ownership equity that occurred during the record-keeping period. This statement is known as the “Statement of Owner’s Equity,” “Statement of Retained Earnings” or “Statement of Stockholders’ Equity,” depending on the company’s ownership structure. This section carries forward the net income and retained earnings at the start of the period in the credit column, with the amount of income distributed to stakeholders in the debit column. The difference between the two columns represents the retained earnings at the end of the period.
5. Balance Sheet
The final section of the worksheet shows the amounts used when generating the balance sheet. These amounts include the assets, liabilities and ending retained earnings. The difference between total assets and total liabilities shows the company’s net worth, thus the total assets will equal the sum of the total liabilities and the ownership equity. The accuracy of the amounts on the company’s balance sheet is an essential factor in determining its financial standing. The preparation and calculations shown on the worksheet help accountants deliver accurate data, allow lenders to evaluate the company’s credit-worthiness and give business owners the information they need to make intelligent decisions.