Comprehensive Problem Supplement P2 Preparation Of A Workshe

Comprehensive Problem Supplement P2preparation Of A Worksheet Financi

Prepare a worksheet, financial statements, and adjusting and closing entries for Siglo Delivery Service, Inc., based on the provided trial balance and additional information including prepayments, supplies, depreciation, unearned revenue, accrued wages, and interest expenses. Then, determine whether the worksheet can substitute for the financial statements. The final deliverable includes a completed worksheet, income statement, statement of retained earnings, balance sheet, adjusting entries, and closing entries, along with an explanation of the worksheet's role as a financial statement substitute.

Paper For Above instruction

Introduction

Financial reporting is a critical aspect of managerial and external decision-making, requiring accurate and complete records of a company's economic activities. The preparation of financial statements such as the income statement, statement of retained earnings, and balance sheet hinges on the accurate compilation and analysis of trial balances, augmented by necessary adjustments. This paper explores the process of preparing a worksheet, making necessary adjusting and closing entries, and evaluating whether a worksheet can be a substitute for financial statements, using Siglo Delivery Service, Inc. as a case study.

Preparation of a Worksheet

The initial step involves transferring the trial balance amounts into the worksheet's trial balance columns. For Siglo Delivery Service, Inc., the first phase includes recording the trial balance figures such as cash, accounts receivable, prepaid insurance, supplies, land, building, accumulated depreciation, trucks, office equipment, accounts payable, unearned lockbox fees, mortgage payable, common stock, retained earnings, dividends, revenue, wages expense, and other expenses. This process ensures a clear and organized baseline for subsequent adjustments.

Next, adjustments based on additional information are incorporated into the worksheet. These adjustments include expired insurance, unused supplies inventory, depreciation on assets, unearned revenue recognition, accrued expenses, and interest expenses. For example, expired insurance of $3,060 reduces prepaid insurance, and depreciation on the building, trucks, and office equipment are estimated at $14,400, $15,450, and $2,700, respectively. Additionally, unearned lockbox fees of $8,340 have earned $5,630, which must be recognized as revenue, while unrecorded lockbox fee earned at the period's end of $816 needs to be accrued. Wage accruals of $168 are also included, along with estimated taxes of $1,250.

These adjustments are entered into the worksheet by debiting or crediting respective accounts and updating the balances accordingly. The adjusted trial balance columns reflect these changes, setting the stage for extracting the financial statements.

Financial Statements Preparation

Once the worksheet is complete, the income statement is prepared by summing revenues and deducting expenses, which include wages, supplies, insurance, depreciation, and interest, to determine net income. For Siglo Delivery Service, Inc., revenues such as delivery service revenue and lockbox fee earned are aggregated, adjusted for unearned and unrecorded fees, while expenses encompass truck wages, office salaries, supplies, depreciation, and interest.

The statement of retained earnings updates accumulated earnings by adding net income and subtracting dividends, providing a comprehensive view of retained profits at year's end. The balance sheet then presents assets, liabilities, and equity, incorporating the adjusted balances from the trial balance and new adjustments such as depreciation, accrued wages, and unearned revenue recognized as earned.

Adjusting and Closing Entries

Adjusting entries record the necessary changes to reflect the true financial position—such as depreciation, accrued wages, and revenue recognition—without altering the primary trial balances. For example, a debit to depreciation expense and a credit to accumulated depreciation encapsulate depreciation adjustments. An accrued wages expense is similarly journalized by debiting wages expense and crediting wages payable.

Closing entries transfer the temporary account balances—revenues, expenses, and dividends—to retained earnings, resetting these accounts for the new accounting period. This process involves debiting revenue accounts and crediting income summary, then debiting income summary and crediting expense accounts, and finally, closing the dividends to retained earnings.

Can the Worksheet Serve as a Substitute?

The worksheet is an essential tool for organizing and reviewing accounting data, facilitating adjustments and financial statement preparation. However, it cannot replace finalized financial statements. A worksheet is primarily a working paper that summarizes the adjustments and trial balances but lacks the official formatting, disclosures, and audit trail of comprehensive financial statements. Moreover, the worksheet does not fulfill external reporting requirements and lacks the regulatory compliance embedded in formal statements.

In conclusion, while a worksheet streamlines the process of preparing accurate financial statements and ensures internal consistency, it should not be considered a substitute for them. Official financial statements are essential for external communication, regulatory compliance, and stakeholder decision-making, whereas the worksheet functions as a preparatory and organizational tool.

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