1. Complete the Trial Balance columns, total, and rule. (They must equal.)
2. Put the adjusting entries (new inventory amount) in the balance sheet columns of supplies and prepaid insurance.
a. Calculate the difference between the new balance in the balance sheet columns and the old amount in the trial balance. That is the number that will be placed in the adjustments columns. *Note: Supplies will be credited and Supplies Expense will be debited. Prepaid Insurance will be credited and Insurance Expense will be debited.
b. Total the Adjustments columns. (They must equal.)
3. Transfer the Balance Sheet (Assets, Liabilities, and Capital) account balances from the Trial Balance columns to the Balance Sheet columns.
4. Transfer the Income Statement (Revenue and Expenses) account balances from the Trial Balance columns to the Income Statement columns.
5. Total the Income Statement columns and the Balance Sheet columns.
6. Find the difference between the Income Statement Debit and Credit columns and the Balance Sheet Debit and Credit columns. (They must equal.)
a. Place the differences below the smallest number in the Income Statement debit or credit columns and below the smallest number in the Balance Sheet columns.
b. Total the final numbers of the Income Statement debit and credit columns and the Balance Sheet debit and credit columns.
c. Check to make sure that the Income Statement debit and credit columns equal each other.
d. Check to make sure that the Balance Sheet debit and credit columns equal each other.
7. If c & d are correct……double rule the column totals to show that they are in balance.
PREPARING THE INCOME STATEMENT AND THE BALANCE SHEET.
1. Using the information from the Worksheets Income Statement columns, prepare the Income Statement.
*Remember to compute % of Sales on the Sales, Total Expenses, and Net Income.
(Total Expenses or Net Income divided by Total Sales = the Component Percentage.
2. Prepare the Balance Sheet by transferring the information from the Balance Sheet columns of the Worksheet.
*Don't forget to recalculate your new capital amount for this Balance Sheet.
(Old Capital plus net income (or minus net loss) minus drawing = new Capital.