Understanding the Purpose and Process of Using Worksheets for Financial Statement Preparation

Changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period

Adjustments

A worksheet serves as a tool for accountants to organize the information that is needed for the preparation of financial statements. The worksheet is usually prepared at the end of a fiscal period and it includes several columns such as the Trial Balance, adjustments, adjusted Trial Balance, income statement, and balance sheet. The main purpose of the worksheet is to identify any errors or discrepancies in the accounting records, make necessary adjustments and prepare the financial statements.

The adjustments column of the worksheet is used to record changes that are needed to update general ledger accounts at the end of a fiscal period. These changes typically fall into two categories:

1. Accruals – These are adjustments made to account for expenses or revenues that have been incurred but not yet recorded in the general ledger. For example, if an employee has worked for the company but hasn’t been paid yet, an accrual entry is needed to record the expense. Similarly, if a customer has received the goods or services but hasn’t paid yet, an accrual entry is needed to record the revenue.

2. Deferrals – These are adjustments made to account for expenses or revenues that have been recorded in the general ledger but do not belong to the current period. For example, if a company has prepaid rent for six months, only one month’s rent belongs to the current period, and the remaining five months’ rent belongs to the next period. To reflect this, a deferral entry is necessary.

After all necessary adjustments have been recorded on the worksheet, the adjusted trial balance column is prepared which includes all the updated account balances. The adjusted trial balance is then used to prepare the financial statements – the Income Statement and the Balance Sheet. These financial statements provide a clear picture of the financial performance and position of the company at the end of the fiscal period.

More Answers: