At Rhino Foods, Inc., financial statements help employees understand what is happening in the business.

In
Chapter 3, we prepared financial statements directly from the adjusted trial balance. However, with so many
details involved in the end-of-period accounting procedures, it is easy to make errors. One way to minimize
errors in the records and t o simplify the end-of-period procedures is t o use a worksheet.
In this chapter, we will explain the role of the worksheet in accounting. We also will study the remaining
steps in the accounting cycle, especially the closing process, again using Pioneer Advertising Agency Inc.
as an example. Then we will consider correcting entries and classified statements of financial position. The
content and organization of Chapter 4 are as follows.

Steps in preparation
Preparing financial
statements
Preparing adjusting
entries

Prepare a worksheet.

Preparing closing entries

Posting closing entries
Preparing a post-closing
trial balance

Reversing entries-An
optional step
Correcting entries-An
avoidable step

Intangible assets
Property, plant, and
equipment
Long-term investments
Current assets
Equity
Non-current liabilities
Current liabilities

A worksheet is a multiple-column form used in the adjustment process

and in preparing financial statements. As its name suggests, the worksheet
is a working tool. It is not a permanent accounting record; it is neither a
journal nor a part of the general ledger. The worksheet is merely a device
used in preparing adjusting entries and the financial statements. Companies generally computerize worksheets using an electronic spreadsheet program such as
Excel.
Illustration 4-1 shows the basic form of a worksheet and the five steps for
preparing it. Each step is performed in sequence. The use of a worksheet is optional.
When a company chooses to use one, it prepares financial statements from the
worksheet. It enters the adjustments in the worksheet columns and then journalizes and posts the adjustments after it has prepared the financial statements. Thus,
worksheets make it possible to provide the financial statements to management
and other interested parties at an earlier date.

Steps in Preparing a Worksheet

We will use the October 31 trial balance and adjustment data of Pioneer
Advertising Agency Inc. from Chapter 3, to illustrate how to prepare a worksheet.