All right, now let's take a look at a worksheet example. Here is the worksheet that we will be working on. First we will enter the account names in trial balance order. Notice the new accounts that were added as a result of the adjusting entries that we created last week. Also notice that there are five sections of the worksheet, and we will prepare these in five separate steps. Also notice that each section has a debit and credit column. Take a look at the trial balance before adjusting entries were posted. All right, this is going to help us populate that first set of columns. All right, the trial balance columns, take a look for example, cash has a balance of 11,650. Now we see the trial balance have that same 11,650. Also, recall that the totals on that trial balance were $48,700 okay? And that's exactly what we have in the trial balance section. Okay, now we're going to be moving on to step two. Recall the adjusting entries that we prepared last week. We will be utilizing this information and populating that second section for the adjustments. Their first entry was insurance expense for 1,400 debit and we credited prepaid insurance for 1,400. And it's easier to track these adjustments by utilizing those red letters, all right. Step three is to complete the adjusted trial balance section, part one. So part one includes moving those balances over from the trial balance if there were no adjustments. For example, take a look at cash. Cash has a debit balance in the trial balance of 11,650. We moved that right over to the adjusted trial balance with the debit column 11,650 because there were no adjustments. The next step is when there were adjustments. For example, take a look at accounts receivable, accounts receivable in the trial balance. There's a debit balance of $2,000, the adjustments, adjustment E, we debited 5,500. So to get our adjusted trial balance total, we take that $2,000 plus 5,500. It gives us 7,500 in the adjusted trial balance. Now lets take a look at the prepaid insurance. Prepaid insurance had $5,200 in the trial balance. Then we credited $1,400 in the adjustment section. So what we need to do is take 5,200 minus 1,400 which gives us 3,800 in the debit column. Also one other thing I want you to take a look at accumulated depreciation. There was nothing in the trial balance, there's only an adjustment. So we will pull that adjustment balance over to the adjusted trial balance with a credit of $400. Notice, totals for debit and credit for the adjusted trial balance, that we had created last week exactly ties to the totals in the adjusted trial balance section. Now we have step four, complete the income statement section. Notice the items in blue from service revenue on down to interest expense will be the items that we will put in the income statement section. Then we will total those. Notice they're highlighted in yellow, and they do not equal. We'll get to that momentarily. Next, we will complete step five in the worksheet by completing the balance sheet section. Those are the items highlighted in green from cash on down to dividends. Notice we just pull all of the information over from the trial balance to the balance sheet section, then we will total the balance sheet section. Again highlighted in yellow, the debits do not equal the credits, in either the income statement or the balance sheet. What happened? All right, that actually should happen. Because recall in the income statement when we have revenue minus expenses, it doesn't equal 0. Or typically it shouldn't equal 0, we would subtract those and get net income. So we will incorporate the net income section, okay, in order to balance our income statement and balance sheet, recall that net income increases equity. So we put that in the credit column, and then we will balance it out by putting it in the debit column for the income statement section. And then our debits and credits equal 20,000 for the income statement, and 45,200 for the balance sheet. Thank you so much for joining me for week two. I cannot wait to see you next week when we will be talking about creating the financial statements. Have a fantastic week. [SOUND]
