Financial Statements

Question 1

Define a trial balance.

Answer 1

A trial balance is a list of all the ledger accounts and their balances extracted on a given date.

Question 2

What are the purposes of a trial balance?

Answer 2

• It helps to check the arithmetic accuracy of the recording of transactions.
• It helps in the preparation of financial statements.

Question 3

Explain the limitations of the trial balance.

Answer 3

Accounting errors may still exist in the ledger accounts even if the Trial Balance’s total debit balance is equal to its total credit balance. An example of an error that will not be revealed by Trial Balance is error of omission (unrecorded transaction).

Question 4

What is a balance sheet?

Answer 4

A balance sheet is a financial statement that lists the assets, liabilities and equity of a business at a given point in time.

Question 5

What is an income statement?

Answer 5

An income statement is a financial statement that shows how much income, expense and profit/ loss a business has over a period of time.