Lecture 14

Topic
Preparing

6 Worksheet and
Financial Statements

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 Objective
After studying this topic, you should be able
to:
1. Preparing Worksheet
2. State the required step in the accounting
cycle
3. Prepare financial statement from
adjusted trial balance
4. Identify the sections of classified balance
sheet
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 Adjustment Items
a) Fast Forward paid RM2,400 for 24
months of insurance benefits beginning 1
December 2007.
b) Fast Forward purchase RM9,720 of
supplies and as of 31 December
RM8,670 remain unused.
c) Equipment costing RM26,000 was
purchased in early December. The
equipment can be used for four years
after which it will have a scrap value of
RM8,000. (use straight line depreciation)
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 Adjustment Items

d) A client paid RM3,000 on 26 December to Fast

Forward in payment of consultation fee for 60
days.
e) Fast Forward employee earns RM70 a day or
RM350 a five-day workweek beginning
Monday ending Friday. This employee is paid
every 2 weeks on Friday.
f) Fast Forward agreed to provide consulting
services to a sport club for RM2,700 beginning
12 December 2007 for 30 days.

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 Adjusting Entries
Record the adjusting entries now:
a)

b)

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 Adjusting Entries
c)

d)

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 Adjusting Entries
e)

f)

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 FastForward
Trial Balance
December 31, 2007

First,
First, the
the
$
initial
initial
unadjusted
unadjusted
amounts
amounts are are
added
added to to the
the
worksheet.
worksheet.

$ $
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 Adjusting Entries
Enter the adjusting entries in the adjustment
column of the worksheet.

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 FastForward
Trial Balance
December 31, 2007

Next,
Next,
FastForward’s
FastForward’s
adjustments
adjustments
are
are added.
added.

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 FastForward
Finally,
Finally, the
the totals
totals Trial Balance
are
are determined.
determined. December 31, 2007

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 Preparing Financial Statements
Let’s use FastForward’s adjusted trial
balance to prepare the company’s
financial statements.

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 Prepare the Income
Statement.

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 Prepare the Statement of
Changes in Owner’s Equity.
Note: Net Income from the Income
Statement carries to the Statement of
Changes in Owner’s Equity.

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 FastForward
Balance Sheet
December 31, 2007
Assets
Cash 4350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Less: accum. depr. (375) 25,625
Total assets RM42,745
Liabilities
Accounts payable RM6,200
Salaries payable 210
Unearned consulting revenues 2,750
Total liabilities RM 9,160
Owner's Equity
Chuck Taylor, Capital 33,585
Total liabilities and equity RM42,745

Prepare the
Balance Sheet.
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The
The Classified
Classified Balance
Balance Sheet
Sheet
Presents a snapshot at a point in time.

To improve understanding, companies group

similar assets and similar liabilities together.

Standard Classifications
Assets Liabilities and Owner’s Equity
Current assets Current liabilities
Long-term investments Long-term liabilities
Property, plant, and equipment Owner’s (Stockholders’) equity
Intangible assets

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The
The Classified
Classified Balance
Balance Sheet
Sheet
Current Assets
Assets that a company expects to convert to
cash or use up within one year or the
operating cycle, whichever is longer.

Operating cycle is the average time it takes

from the purchase of inventory to the
collection of cash from customers.

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The
The Classified
Classified Balance
Balance Sheet
Sheet
Current Assets

Companies usually list current asset accounts in the order

they expect to convert them into cash.
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The
The Classified
Classified Balance
Balance Sheet
Sheet
Review Question
Cash, and other resources that are reasonably
expected to be realized in cash or sold or
consumed in the business within one year or the
operating cycle, are called:
a. Current assets.
b. Intangible assets.
c. Long-term investments.
d. Property, plant, and equipment.

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The
The Classified
Classified Balance
Balance Sheet
Sheet
Long-Term Investments
Investments in stocks and bonds of other companies.

Investments in long-term assets such as land or

buildings that a company is not currently using in its
operating activities.

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The
The Classified
Classified Balance
Balance Sheet
Sheet
Property, Plant, and
Equipment
Long useful lives.

Currently used in operations.

Depreciation - allocating the cost of assets to a

number of years.

Accumulated depreciation - total amount of

depreciation expensed thus far in the asset’s
life.
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The
The Classified
Classified Balance
Balance Sheet
Sheet
Property, Plant, and
Equipment

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The
The Classified
Classified Balance
Balance Sheet
Sheet
Intangible Assets
Assets that do not have physical substance.

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The
The Classified
Classified Balance
Balance Sheet
Sheet
Review Question
Patents and copyrights are
a. Current assets.
b. Intangible assets.
c. Long-term investments.
d. Property, plant, and equipment.

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The
The Classified
Classified Balance
Balance Sheet
Sheet
Current Liabilities
Obligations the company is to pay within the
coming year.

Usually list notes payable first, followed by

accounts payable. Other items follow in order
of magnitude.

Liquidity - ability to pay obligations expected

to be due within the next year.

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The
The Classified
Classified Balance
Balance Sheet
Sheet
Current Liabilities

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The
The Classified
Classified Balance
Balance Sheet
Sheet
Long-Term Liabilities
Obligations a company expects to pay after one year.

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The
The Classified
Classified Balance
Balance Sheet
Sheet
Review Question
Which of the following is not a long-
term liability?
a. Bonds payable
b. Current maturities of long-term
obligations
c. Long-term notes payable
d. Mortgages payable
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The
The Classified
Classified Balance
Balance Sheet
Sheet
Owner’s Equity
Proprietorship - one capital account.
Partnership - capital account for each partner.
Corporation – Share Capital and Retained Earnings.

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 End of Topic 6

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