In the end of an accounting period it is recommended to prepare a worksheet. This is a form with multiple columns which is very helpful in the process of adjusting entries and preparing financial statements. The worksheet presents all the information needed at the end of the financial period in a convenient and systematic manner, it helps to summarize the data and to move them from trial balance to official financial statements. A worksheet is a supplementary accounting tool, and it should not be confused with parts of the journal or the general ledger (Wild, 2005). A typical worksheet includes five pairs of debit and credit financial columns which contain trial balance, adjustments, adjusted trial balance, income statement and balance sheet (Weygandt & Kimmel & Kieso, 2009). The rows of worksheet contain the account titles: assets, liabilities, owner’s equity, revenues, costs and expenses (Berry, 2000).
The use of worksheet is optional, and most companies use spreadsheet software to create worksheets. If a worksheet is included into the accounting process, then it is possible to journalize and post the entries in the worksheet, and thus to prepare financial statements more quickly and efficiently. If the financial statements are necessary for interim purposes (and not for official purpose), it is better to use a worksheet since it allows to save time and to eliminate possible errors. Moreover, worksheet can help to identify many discrepancies before they are posted to the ledger accounts and before entering the data in the general ledger (Gilbertson & Lehman, 2008).
The process of preparing the worksheet and worksheet-based financial statements requires the following steps (Flynn & Koornhof & Flynn, 2005).
- Preparation of unadjusted trial balance – the accounts used during the period should be listed in the Dr. and Cr. sections of the trial balance part of the worksheet; first the accounts related to the trial balance sheet are listed, then accounts relating to income statement, and retained earnings account is added, if it is appropriate (Sofat & Hiro, 2008). The accounts should balance, e.g. the equality of debits and credits should take place
- Adjustment of entry columns – two next columns of the worksheet contain adjustments of journal entries (if the worksheet is used, formal adjustment entries can be done already after completing the worksheet); adjusting entries should be marked so that it would be easy to determine the credit and debit side of each adjustment entry (Eisen, 2007); again, the equality of debits and credits should hold;
- Preparation of adjusted trial balance – at this step the adjustments included in the worksheet at the previous step are applied to the accounts of the unadjusted trial balance; this trial balance can be used for preparing official financial statements;
- Preparation of income statement – at this stage the accounts associated with income statement in the adjusted trial balance section are summarized and placed on the income statement; net income is calculated as the difference between total debits and credits parts of these accounts (Rich & Jones & Mowen & Hansen, 2009); at this stage net income can also be transferred to net earnings, if it is required;
- Preparation of the statement of retained earnings – such accounts as beginning retained earnings and dividends are exported form the adjusted trial balance, and the difference between them is the ending retained earnings; moreover, the amount of ending retained earnings is transferred to the final balance sheet in the credit column (Agtarap-San Juan, 2007);
- Preparation of the balance sheet – at this stage appropriate columns of the adjusted balance sheet are transferred to the balance sheet columns.
After completing the above-mentioned steps, an accountant has all necessary information for completing official financial statements. If the financial statements were required for internal purposes, the information from the worksheet can already be used for managerial decision-making.
Agtarap-San Juan, D. (2007). Fundamentals of Accounting. AuthorHouse.
Berry, A. (2000). Financial accounting: an introduction. Cengage Learning EMEA.
Eisen, P.J. (2007). Accounting. Barron’s Educational Series.
Flynn, D.K. & Koornhof, K. & Flynn, D. (2005). Fundamental Accounting. Juta and Company Ltd.
Gilbertson, C.B. & Lehman, M.W. (2008). Fundamentals of Accounting. Cengage Learning.
Rich, J.S. & Jones, J.P. & Mowen, M.M. & Hansen, D.R. (2009). Cornerstones of Financial Accounting. Cengage Learning.
Sofat, R. & Hiro, P. (2008). Basic Accounting. PHI Learning Pvt. Ltd.
Weygandt, J.J. & Kimmel, P.D. & Kieso, D.E. (2009). Financial Accounting. John Wiley and Sons.
Wild, J.J. (2005). Financial accounting: information for decisions. McGraw-Hill/Irwin.