Steps in Preparing the Worksheet:

In smaller companies the adjustments are usually entered directly in the journal and posted to the
ledger, and the financial statements are prepared directly from the adjusted trial balance. For larger
companies, however, which may require many adjusting entries, a worksheet is essential. The work
sheet is identified by a heading that consists of the name of the company, the title "Work Sheet", and the
period of time covered (as on the income statement). There are five steps in the preparation of a
work sheet, as shown below:
(i) Entering the Account Balances in the Trial Balance Column:
The titles and balances of the accounts are copied directly from the ledger into the trial balance
columns. When a work sheet is prepared, a separate trial balance in not required. However, if it has
been prepared, the balances may be posted from it in the work sheet.
(ii) Entering the Adjustments in the Adjustment Columns:
Adjustments have been already explained. The same adjustments are enteredin the adjustment
columns of the work sheet as shown in earlier example. As each adjustment is entered, a letter is used
to identify the debit and credit parts of the same entry. In practice, this letter may be used to reference
supporting computations or documentation underlying the adjusting entry. When all the adjustments
have been entered in relevant debit and credit columns, the pair of adjustments columns must be added.
This step proves that the debits and credits of the adjustments are equal and generally reduces error
in the preparation of the work sheet.
(iii) Entering the Account Balances as Adjusted in the Adjusted Trial Balance Columns:
The adjusted trial balance prepared by combining the amount of each account in the original trial
balance columns with the corresponding amounts in theadjustment's columns and entering the
combined amounts on a line by line basis in the adjusted trial balance columns. Adjusted trial balance
columns are then footed, that is totaled, to check the arithmetical accuracy of tile cross footing just like
that of a normal trial balance.
Some accountants prefer to eliminate the adjusted trial balance columns and to extend the adjusted
account balances directly to the appropriate statement column for 7 to 12. Such an alternative form of
work sheet is especially popular if there are only a few items involved, it would then becalled a "Jen
Column Work Sheet".
(iv) Extending the Account Balance from the Adjusted Trial Balance Column to the Profit & Loss
Columns or the Balance Sheet Columns, (i.e. from column 5 and 6 to column 7 to 12):
Every account in the adjusted trial balance is either a balance sheet account or an income statement
account. The accounts are sorted, and each account is extended to its proper place as a debit or credit
either in the balance sheet columns or in the trading and profit & loss columns. The result of extending
the accounts is shown in example-(A). Revenue (profits) and expenses accounts are moved to the profit
& loss columns. Assets and liabilities as welt as capital and drawings accounts are then extended to the
balance sheet columns. To avoid over looking an account, extend the accounts line by line, beginning
with the first line (which is cash) and not omitting any.
(v) Totaling the Income Statement Columns and the Balance Sheet Columns. Enter the Net
Income or Net Loss in Both Pairs of Columns as a Balancing Figure, and Re-compute Column
Totals:

This last step as shown in example-(A) is necessary to compute net income or net loss and to prove the
arithmetical accuracy of the work sheet. Net income or net loss is equal to the difference between the
debit and credit columns of the income statement. In the illustrative example-(A), the revenue has
exceeded the expenses. Consequently, the company has a net profit of $45,030. This amount of
$45,030 is entered in the debit side of the income statement (PLS A/C) columns to balance the columns
and it is entered on the credit side of the balance sheet columns. This is done because excess revenue
(net income) increases capital and increases in owner's capital are recorded by credits. If a net loss had
occurred, the opposite rule world apply.

Example and its Solution for the Preparation of Worksheet:

Example-(A):
X & Y Company
The trial balance of X & Y Company, as on 30th June is given below:

Cash in hand
Sundry debtors
Discount
Drawings
Opening stock
Purchases
Sales returns
Miscellaneous trade
expenses
Labor wages
Salaries
Traveling expenses
Advertising
Rent and insurance
Interest and bank charges
Bad debts
Buildings
Plant and machinery
Furniture
Capital
Purchases returns
Sales (gross)
Creditors
Bank overdraft
Total
Following additional information is also available:
(i) Closing stock on 30th June is $45,000

$
680
46000
300
11000
30000
75000
2700

$
-

755

3500
5600
850
500
2800
215
400
6000
10000
5000
$201300

35000
1300
125000
30000
10000
$201300

(ii) Charge depreciation at 10% on (a) Plant and machinery (b) Furniture.
(iii) Make provision for bad and doubtful debts at 5% of sundry debtors.
(iv) $150 on account of insurance are prepaid.
Required:
Prepare:
(a) Trading and P & L Account.
(b) Balance sheet as on 30th June.
Solution:
X & Y Company
Trading, Profit & Loss Account
For the year ended 30th June
Opening stock
Purchases
75000
Less returns
1300
Net Purchase
Labor charges
Gross profit (carried down)

30000

Sales
Less returns
Net sales
Closing stock

125000
2700
122300
45000

73700
3500
60100

Total

167300

Expenses:
Discount
Salaries
Advertising
insurance
Interest & bank charges
Bad debts
Depreciation (machinery)
Depreciation (furniture)
Provision for bad debts
Miscellaneous trade expenses
Traveling expenses

300
5600
500
2650
215
400
1000
500
2300
755
850

Net profit carried to balance Sheet

45030

Total

167300

Gross profit B/d

60100

60100

60100

X & Y Company
Balance Sheet as on 30th June
Capital and Liabilities
Capital
35000
Add: Profit
45030
80030

Assets
Cash in hand
Prepaid insurance
Sundary Debtors

680
150

Less: Drawings
Creditors
Bank Overdraft

11000

69030 46000
30000 Less:
10000 Provision
Stocks
Plant & Machinery
10000
Less:
Depreciation
Furniture
10903 5000
0 Less: Depreciation
Building

43700
45000
2300
9000
4500
6000
1000
109030
500

Example-(B):
This solved problem illustrates the use of a work sheet where the columns of trading and profit & loss
account has been substituted by Income Statement column .
The trial balance for the B & M Delivery Company as on December 31, was as follows:

Debit $
Cash

10650

Accounts receivable

6400

Supplies on hand

1400

Prepaid insurance

2400

Prepaid rent

40000

Credit $

Accounts payable

3130

Service Fee received in advance

4500

Capital stock

50000

Dividends (drawings)

3000

Service revenue

10700

Advertising expenses

50

Gas & oil expenses

680

Salaries expenses

3600

Utilities expenses

150
Total

68330
B & M Delivery Company

Additional Data:
(a) Insurance expense for the month of December $200
(b) Rent expense for the month of December $400
(c) Supplies used during the month $500
(d) Depreciation for December $50
(e) One-third of the fees-received in advance account has been earned by 31 stDecember.
(f) Interest earned but not yet received $600
(g) Unbilled service $1000
(h) Accrued salaries $180
B & M Delivery Company Worksheet as on 31st December

68330

Accoun Trail
Adjust Adjuste Income
t Title Balance ments d Trial Stateme
Balance
nt
Dr.

Cr.

Dr.

Balance Sheet

Cr.

Dr.

Cr.

Dr.

Cr.

Dr.

Cash

10650

10650

10650

Account receivable

6400

6400

6400

Supplies on hand

1400

500

900

900

Prepaid insurance

2400

200

2200

2200

Prepaid rent

40000

400

39600

39600

Account payable

3130

Service fee received

in advance

4500

Capital stock

50000

Dividends (drawings)

1500

3000

Service revenue

3130

3130

3000

3000

50000

50000

3000
10700

2500

3000
13200

13200

Advertising expenses

50

50

50

Gas and oil expenses

680

680

680

Salaries; expenses

3600

3780

3780

Utilities expenses

150

150

150

180

Insurance expense

200

200

200

Rent expense

400

400

400

Supplies expense

500

500

500

Depreciation

750

750

750

Accumulated
Depreciation

750

Interest receivable

600

750
600

600

600

Salaries payable

180

180

1000

600
180

1000

1000

Net profit
Total

750

600

Interest revenue
Service revenue
receivable

7290
68330 68330

5130

5130

70860

Cr.

70860

7290

1380 13800 64350 64350

0