4. From trial balance to financial statements Flashcards
Calculating the balance on the account
1 total both sides and find the larger
2 put the larger number in total for each side
3 insert a balancing figure in the side of the t account that does not add up to the larger number
4 carry the balance down, know as a c/f
5 when opening the t account this number becomes the b/f and moves diagonally over
Preparing the trial balance
To check the accuracy of the ledger entries we list the balances of each account and total them at the bottom. Both debit and credit sides should balance
Errors of omission
Transaction has been left out
Errors of commission
One side of the transaction has been entered into the wrong account
Errors of principle
The correct and incorrect amounts are of different types I.e. Dr has gone to SFP instead of SPL
Error of original entry
Wrong amount has been used for both debit and credit entries
Reversal of entries
Where Dr has been made to the account that should have had cr and vice versa
Duplication of entries
Gone in twice or more
Compensating errors
Two or more transactions has been entered incorrectly but cancel each other out
Closing off accounts
At year end the ledger accounts must be closed off
Statement of profit or loss
At end of period all amounts relating to income and expenditure go to the SPL
When doing this do not show a cf but “to statement of profit or loss”
Statement of financial position
Includes all asset, liabilities and capital accounts that have balances
Balancing the account will result in a balance CF
