Introduction
You learned about the ledger in the last unit. Remember, the ledger is a collection of all the accounts used in a business with their current account balances.
- What causes ledger accounts balances to change?
Journal entries are made throughout the accounting cycle and those journal entries are later posted or transferred to the ledger and the account balances are updated. But, the owner of a business needs more information than just a list of accounts balances. They need to know the company’s financial position.
- What causes ledger account balances to change?
- Journal entries
An accountant will prepare financial statements that will show the financial position of the company. To help with the preparation of financial statements, worksheets are used. Worksheets serve three purposes:
- To prove that total debits equal total credits,
- To help organize information for financial statement preparation,
- To determine Net Income or Net Loss.
When revenue is greater, Net Income = Total Revenue - Total Expenses
When expenses are greater, Net Loss = Total Revenue - Total Expenses
Following successful completion of this lesson, students will be able to...
- Analyze the accounting equation for the purpose of relating it to the accounting cycle.
Essential Questions
- How is the worksheet used to prepare financial statements?
Enduring Understandings
- In accounting, worksheets are used to prepare financial statements.
- Financial statements are essential to keep track of the company's success.
The above objectives correspond with the Alabama Course of Study: Accounting standards: 5.