The Trial Balance

Question 1

What is the trial balance?

Answer 1

A summary of the balances on all the ledger accounts making up the general ledger - it is used to detect errors.

Question 2

How can you tell if an error has been made?

Answer 2

If the total credits and total debits are not equal.

Question 3

In the profit or loss account, what is the section down to “gross profit” known as?

Answer 3

Trading account

Question 4

What might be included in the profit/loss account?

Answer 4

Cost of sales (opening+ closing inventory, purchases)
Distribution costs
Administrative expenses
Finance costs
Profit before/after tax
Income tax expense

Question 5

When are all income and expense accounts cleared to the profit or loss account (within the nominal ledger as per double entry rules)?

Answer 5

At the end of the accounting period

Question 6

Are balances ‘carried forward’ on the profit/loss account?

Answer 6

No - all the income and expense accounts will start the new accounting period with a nil balance (because we need accounts to show income and expense for a given period - it would be wrong to have last year’s wages/sales included in this year’s figures).

Question 7

What is the final step of the profit/loss account?

Answer 7

Clear the balance on the P+L account to retained earnings (drawings are cleared to the capital account),

Question 8

Look at format of P+L and SoFP

Answer 8

Pages 20-22