Fundamentals of Accounting - Learn About Accounting Process and ... - Free Printable

Let’s go step by step to understand what’s happening in this accounting worksheet and how to fix the errors.

---

Step 1: Understand the structure of the worksheet

This is an accounting worksheet for Bob’s Donut Shoppe, Inc. It has five main columns:

1. Unadjusted Trial Balance – balances before any adjustments.
2. Adjusting Entries – entries made at the end of the period to update accounts (like depreciation, accrued expenses, etc.).
3. Adjusted Trial Balance – after adding/subtracting adjusting entries.
4. Income Statement – shows revenues and expenses to calculate net income or loss.
5. Balance Sheet – shows assets, liabilities, and equity.

At the bottom, we see totals for each column. But there are mistakes — especially in the Income Statement and Balance Sheet columns.

---

Step 2: Check the Adjusted Trial Balance

First, let’s verify that the Adjusted Trial Balance totals are correct.

We add up all the debit (Dr) and credit (Cr) amounts in the “Adjusted Trial Balance” column.

From the table:

- Total Dr = $107,300
- Total Cr = $107,300 → ✔ This matches. So adjusted trial balance is balanced.

Good. Now move to next step.

---

Step 3: Move amounts to Income Statement and Balance Sheet

In a worksheet, you take each account from the Adjusted Trial Balance and put it into either:

- Income Statement (if it’s revenue or expense), OR
- Balance Sheet (if it’s asset, liability, or equity)

Then, you total both sides of the Income Statement. The difference between total debits and credits on the Income Statement is your Net Income or Net Loss.

That net amount then goes to the Balance Sheet side to make it balance.

---

Step 4: Look at current Income Statement column

Current Income Statement column:

- Debits (expenses):
Cost of goods sold: 1,200
Depreciation expense: 500
Office rent expense: 750
Supplies expense: 3,000
Utilities expense: 700
Wages expense: 3,000
Interest expense: 500
→ Total Dr = 1,200 + 500 + 750 + 3,000 + 700 + 3,000 + 500 = 9,650

- Credits (revenues):
Revenues: 3,600
→ Total Cr = 3,600

So, Expenses > Revenues → That means Net Loss

Net Loss = 9,650 - 3,600 = 6,050

✔ This part is correct as shown in the image.

But here’s the problem: In the worksheet, the Net Loss should be added to the credit side of the Balance Sheet, because losses reduce owner’s equity (which is a credit account).

Wait — actually, let’s think carefully.

In the worksheet format:

- On the Income Statement, if debits > credits → Net Loss → you write the loss amount on the credit side of the Income Statement to balance it. Then you carry that same amount to the debit side of the Balance Sheet (because loss reduces equity, which is normally a credit, so to show reduction, you put it on debit side? Wait — no!)

Actually, standard practice:

> When you have a net loss, you put the loss amount on the credit side of the Income Statement to make its totals equal. Then, since loss reduces retained earnings (equity), you put the same amount on the debit side of the Balance Sheet under Equity section.

BUT — looking at the image:

They wrote:

> Net Loss: (6,050) under Income Statement Cr column → that’s correct to balance IS.

Then they also wrote (6,050) under Balance Sheet Cr column → ✘ That’s WRONG.

Because:

- Net loss reduces equity → equity is a credit account → to reduce it, you need to debit equity → so net loss should appear on the debit side of the Balance Sheet.

Also, check the Balance Sheet totals now:

Current Balance Sheet column:

Debits:
Cash: 49,600
Accounts Receivable: 3,000
Prepaid Rent: 750
Inventory: 18,800
Renovation: 25,000
Dividends: 500
→ Total Dr = 49,600 + 3,000 + 750 + 18,800 + 25,000 + 500 = 97,650

Credits:
Accumulated depreciation: 500
Accounts payable: 19,000
Accrued expenses: 700
Unearned income: 9,000
Long-term liabilities: 24,500
Common stock: 50,000
→ Total Cr = 500 + 19,000 + 700 + 9,000 + 24,500 + 50,000 = 103,700

Now, if we add Net Loss of 6,050 to the debit side of Balance Sheet:

New Dr total = 97,650 + 6,050 = 103,700

Which equals Credit total → ✔ Balanced!

But in the image, they put Net Loss on the credit side of Balance Sheet → making Cr total even bigger → 103,700 + 6,050 = 109,750 → which doesn’t match Dr 97,650 → hence imbalance.

Also, their final "Totals" row says:

Income Statement: Dr 9,650 | Cr (9,650) → wait, they have (3,600) originally, then added (6,050) to make Cr total 9,650? Let me recheck.

Original Income Statement Cr was 3,600 (from Revenues). To balance with Dr 9,650, you need to add 6,050 on Cr side → so Cr becomes 3,600 + 6,050 = 9,650 → yes.

Then for Balance Sheet:

They have Dr 97,650 and Cr 103,700 → difference is 6,050 → so to balance, you must add 6,050 to Dr side.

But they added it to Cr side → mistake.

Also, look at their final “Totals” line:

It says:

Income Statement Totals: Dr 9,650 | Cr (9,650) → okay.

Balance Sheet Totals: Dr 97,650 | Cr (97,650) → but how? They had Cr 103,700 earlier, then subtracted 6,050? No — they incorrectly placed Net Loss on Cr side and then somehow forced the totals to match by writing (97,650) — which is wrong.

The correct way:

After placing Net Loss on debit side of Balance Sheet, the Balance Sheet totals become:

Dr: 97,650 + 6,050 = 103,700
Cr: 103,700 → balanced.

And Income Statement:

Dr: 9,650
Cr: 3,600 (revenue) + 6,050 (net loss adjustment) = 9,650 → balanced.

---

Step 5: Fix the errors

So the only error is:

→ Net Loss of $6,050 should be recorded on the DEBIT side of the Balance Sheet, not the credit side.

Everything else is correct.

Also, note: Dividends are already included in Balance Sheet Dr side — that’s correct, because dividends reduce equity.

---

Final Verification

Let’s recalculate everything cleanly.

#### Income Statement:

Expenses (Dr):
- COGS: 1,200
- Depreciation: 500
- Rent: 750
- Supplies: 3,000
- Utilities: 700
- Wages: 3,000
- Interest: 500
Total Expenses = 9,650

Revenues (Cr): 3,600

Net Loss = 9,650 - 3,600 = 6,050

To balance Income Statement: Add 6,050 to Credit side → Total Cr = 3,600 + 6,050 = 9,650 → matches Dr.

#### Balance Sheet:

Assets (Dr):
- Cash: 49,600
- A/R: 3,000
- Prepaid Rent: 750
- Inventory: 18,800
- Renovation: 25,000
- Dividends: 500
Total Assets = 97,650

Liabilities & Equity (Cr):
- Accum. Dep.: 500
- A/P: 19,000
- Accrued Exp: 700
- Unearned Inc: 9,000
- Long-term Liab: 24,500
- Common Stock: 50,000
Total Liab + Equity = 103,700

Difference = 103,700 - 97,650 = 6,050 → this is the net loss, which reduces equity → so add 6,050 to Debit side of Balance Sheet.

New Dr total = 97,650 + 6,050 = 103,700 → matches Cr.

Perfect.

---

Final Answer:
The error is that the Net Loss of $6,050 was incorrectly placed on the credit side of the Balance Sheet. It should be placed on the debit side of the Balance Sheet to properly reflect the reduction in equity. After correcting this, both the Income Statement and Balance Sheet will balance correctly.