Columns of worksheet are drawn mainly as per necessity. Number of columns of worksheet depends on the demand of the particular organization.
The following rules are generally followed in preparing worksheet:
- Name of business organization and preparation date: At the beginning of worksheet the name of the organization for which worksheet is prepared is to be written in bold form and also the date of preparation of worksheet is to be mentioned.
- Drawing column and mentioning the head of the column: Drawing column titles are to be mentioned there.For example, serial number in the first column, title of accounts in the second column and thereafter pair columns such as
(a) Unadjusted trial balance,
(c) Adjusted trial balance
(d) Income statements
(e) Balance sheet etc.are to be written respectively. In each pair column debit in one column and credit in the other are to be written. In case of joint stock company one more pair column for retained earnings is required.
- Unadjusted trial balance: After the serial number and accounts title columns, in unadjusted trial balance, pair column ledger accounts balances are posted straight to check the agreement of trial balance.This trial balance is called pre-closing trial balance as it is prepared with the ledger balances before keeping accounts of adjustment items.Debit and credit balances of ledger accounts are written in the debit and credit columns of the trial balance respectively.
- Adjustment column: At the end of accounting period the items or transactions which have not been accounted for are written in the debit and credit of adjustment columns.At the time of making adjustments if there does not exist any item in the trial balance for debiting and crediting, these adjusting items are to be written below the trial balance under appropriate head(s) in debit and credit columns of adjustment.To identify the adjusting items separate code number for each item be given in debit and credit columns. Thereafter debit and credit columns of adjustments are totaled for assuring their agreement.
- Adjusted trial balance column: Writing necessary adjustments in the adjustment column, balance of every account relating to adjustments is ascertained and thereafter all ledger account balances including adjusted ledger balances are recorded in the debit and credit columns of adjusted trial balance.That is, unadjusted balances of trial balance are adjusted as per rules and these are written down in the column of adjusted trial balance.Writing all ledger balances – adjusted and unadjusted in adjusted trial balance totals of debit and credit are ascertained to prove arithmetical accuracy of the ledger accounts.
- Income statement column: All periodical expenses and incomes of adjusted trial balance are written in debit and credit column of income statement respectively.The difference between total income and total expenses of income statement is called profit or loss. The profit / loss of income statement is transferred to balance sheet if retained earning statement is not prepared.
- Retained earnings statement: In case of joint stock company, retained earning column is kept in the worksheet before balance sheet column.Here previous year’s profit / loss if any and income / loss of income statement of the worksheet are written in the credit money column and distribution of items regarding distribution of profit such as, dividend paid, proposed dividend, income tax paid, creation of fund are shown in the debit money column of retained earnings statement.The difference between the totals of debit and credit columns is transferred to balance sheet column of worksheet.
- Balance sheet: All assets and liabilities of adjusted trial balance including balance of income statement / retained earnings statement are written in the debit and credit columns of balance sheet of worksheet i.e., assets are written in debit money column and liabilities, owners equity are written in the credit money column.Totals of debit and credit column of balance sheet are equal. From the above discussion it is said that the number of columns of worksheet and titles of columns depend on nature and demand of the business concern.
Preparing financial statements from a worksheet
Worksheet contains all information necessary for preparation of financial statements. Income statement is prepared with data of debit and credit columns of income statement of worksheet.
Balance sheet is prepared from balance sheet columns of worksheet.
Financial statements of a business concern mean income statement, retained earnings statement / owners’ equity statement and balance sheet prepared at the end of the accounting period.
The statement which is prepared for ascertaining profit (loss) of a business at the end of an accounting period is called income statement. Income statement is of two types:
- General or single step income statement: In this statement all expenses are deducted straight from income to ascertain net profit (loss). Here the expenses are not shown in classified form.
- Multiple step income statement: In this statement cost of goods sold is deducted from sales revenue to ascertain gross profit. From gross profit all operating expenses such as, selling expense, administrative expenses etc. are deducted to find out net operating income.
After that, other non-operating incomes like rent revenue, interest revenue etc. are added to net operating income from which other non-operating expenses such as interest expense, loss on sale of assets etc. are deducted to ascertain net profit.