Exercise 1 Preparing A Worksheet

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Complete Voice Link’s worksheet for the month ended November 30, 2016, based on the provided unadjusted trial balance and additional information regarding accrued revenues, depreciation, salaries, prepaid rent, and office supplies. After completing the worksheet, calculate the net income for November.

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Introduction

The process of preparing a worksheet is essential in accounting to compile, adjust, and summarize financial data for reporting purposes. The worksheet facilitates the transition from trial balances to financial statements by providing a clear framework for recording adjustments. This case study focuses on Voice Link, a company that requires the completion of its worksheet for November 2016, which involves analyzing its unadjusted trial balance and adjusting entries. The ultimate goal is to determine the net income for the period, reflecting the company's profitability.

Understanding the Unadjusted Trial Balance

The unadjusted trial balance as of November 30, 2016, presents the preliminary balances on various accounts, including assets such as Cash, Accounts Receivable, Prepaid Rent, Office Supplies, and Equipment, along with liabilities like Accounts Payable and Salaries Payable. Equity accounts are represented by Common Stock and Retained Earnings, with dividends, service revenue, and various expense accounts also listed. However, the unadjusted balances do not yet account for necessary adjustments due to accrued revenues, expenses, depreciation, or expired prepaid items, making them insufficient for accurate financial reporting.

Understanding Adjustments

Adjustments are required to reflect the true financial position and performance of the company. For Voice Link, the adjustments include accrued service revenue of $600, depreciation expense of $300, accrued salaries expense of $600, prepaid rent expense of $900, and office supplies used amounting to $500. These adjustments ensure expenses are recognized in the period they are incurred, revenues are recognized when earned, and asset values are accurately reflected after usage or wear and tear.

The process of incorporating these adjustments involves recording adjusting entries, which will modify account balances in the worksheet, leading to an adjusted trial balance that accurately reflects the financial standing of Voice Link at the end of November 2016.

Completing the Worksheet

The worksheet comprises several steps:

  1. Entering the Unadjusted Trial Balance: Listing the beginning balances of all accounts.
  2. Recording Adjustments: Adding entries for accrued revenues and expenses, depreciation, and used supplies.
  3. Calculating Adjusted Trial Balance: Updating account balances post-adjustments, which serve as the basis for financial statements.
  4. Preparing Financial Statements: Deriving the income statement to find net income and the balance sheet for financial position assessment.

Calculation of Net Income

Once the adjusted trial balance is complete, net income is calculated by subtracting total expenses from total revenues. In Voice Link's case, the revenue includes the $8,600 service revenue, while expenses include salaries, rent, utilities, supplies, and depreciation. Recognizing accrued revenues and expenses ensures an accurate reflection of income for November.

Concluding Remarks

Completing the worksheet for Voice Link offers a comprehensive overview of its financial activities in November 2016. Proper recording of adjustments ensures accurate financial reporting and facilitates compliance with accounting standards. The net income figure derived from this process provides essential insight into the company's profitability for the period, guiding management decisions and external reporting.

References

  • Wild, J., Subramanyam, K. R., & Halsey, R. F. (2021). Financial Statement Analysis (12th ed.). McGraw-Hill Education.
  • Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (16th ed.). Wiley.
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  • Gibson, C. H. (2021). Financial Reporting and Analysis (14th ed.). Cengage Learning.
  • Anthony, R. N., Hawkins, D. F., & Merchant, K. A. (2019). Accounting: Texts and Cases. McGraw-Hill.
  • Horngren, C. T., Sundem, G. L., & Elliott, J. A. (2020). Introduction to Financial Accounting. Pearson.
  • Libby, T., Libby, R., & Short, D. (2019). Financial Accounting (9th ed.). McGraw-Hill Education.
  • Revsine, L., Collins, D., & Johnson, W. (2018). Financial Reporting & Analysis. Prentice Hall.
  • Richardson, W. H., & Thurston, B. (2020). Principles of Accounting. South-Western College Pub.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.

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