Work sheet is a document or schedule in which an accountant or auditor gathers information to substantiate an opinion concerning an account balance or test of transaction. At the end of an accounting period, a number of actions are necessary. A trial balance must be constructed, adjusting entries must be journalized and posted, closing entries must be journalized and posted, and financial statements must be prepared. To simplify these procedures and to aid in eliminating errors, a work sheet is used. The work sheet is a columnar sheet of paper designed to arrange accounting data required at the end of the period in a convenient and systematic manner.
Types of work sheets that may be prepared are:
- Test of transaction information showing the sample selected, attributes tested, findings for each item in the sample, and the sample as a whole
- Bank reconciliation.
- Schedule of fixed assets.
- Analysis of various expenses with conclusions on the findings. A group of assembled work sheets becomes the work papers composing the documentation for the audit or review work performed by the accountant. Work sheets may include letters, minutes of meetings and other items not prepared by the auditor.
Procedures for Preparing Work Sheet
- Ledger account balances at the end of the month are entered in the trial balance columns. The debit and credit columns are then totaled.
- Required period-end adjustments are then entered in the Adjustments columns. As a cross reference, the debit and credit parts of each adjusting entry are keyed together by placing a key letter to the left of each amount.
- The adjusted account balances are then entered in the Adjusted Trial Balance columns. Each account balance in the first two columns is combined with any necessary adjusting entry through horizontal addition or subtraction.
- Each account balance is then extended in the appropriate balance sheet or income statement column. Assets, liabilities, and owner’s equity (or stockholder’s equity if a corporation) accounts are income statement accounts. Each amount in the Adjusted Trial Balance columns is extended to only one of the four remaining columns.
- The Balance Sheet and Income Statement accounts are then totaled. The difference between debit and credit columns will determine whether the result of the company’s operations for the period is a profit or loss. If credits to income accounts exceed debits to expense accounts, the result is a net profit; if debits exceed credits, the result is a net loss. This amount is entered as a debit or credit as needed to balance the debit and credit columns of the income statement and balance sheet. The columns are then totaled. All of the paired debit and credit columns should total to equal amounts.