Trial Balance to Financial Statements Flashcards
Trial Balance
- list of all general ledger balances shown in debit/credit columns
- DR/CR should equal
- forms a check on accuracy of ledger a/c entries
Which errors would not be highlighted in trials balance? (4)
- complete omission of a transaction
- where DR/CR posted but to wrong a/c
- compensating error- 2 errors correct each other
- errors of principle DR/CR wrong way round
What errors would be highlighted in trial balance? (2)
- one sided entries
- where entry been posted twice to Dr/Cr
So where rules of double entry bookkeeping been broken
What error can occur when cloud accounting packages used and bank integrated?
- bank payment not posted fully as system doesn’t know correct accounts
- so double entry not complete
How are figures carried over from ledger a/cs to trial balance?
- Financial position/Assets & Liabilities
place same side as balance b/d figure - Profit or Loss/Income & Expenses
place opposite side to b/d figure, the side that you had to fill in gap to balance
What happens to income/expenditure accounts at end of financial yr?
- balances transferred to profit or loss ledger a/c
- ledger a/c closed and new ones created for next yr
- balances not carried into next yr
what happens to balancing figure on profit or loss statement?
- Transferred to Capital account as net profit figure
- used in Financial Position as part of Capital section
Two figures from Statement of Profit or Loss and how found?
- Gross Profit = Sales - Cost of Sales
- Net Profit = Gross Profit - All Expenses
Financial Position Layout
- NCA
- Assets
Total Assets (balances) - Capital
- Net Profits (from Profit/Loss)
- Drawings (negative)
- Liabilities
Total Capital/Liabilities (Balances)
Why is it important that statements prepared accurately?
- otherwise can affect users understanding of them
- affect how view companies performance/position at end of the yr
What is especially important in preparation of statements?
- Assets classified correctly (N-C/C)to know whether will be cash soon or not
- transactions correctly classified as have knock on effect
How is the Capital a/c balanced at end of yr?
- Drawings balance b/d transferred to Dr side of Capital a/c
- Double entry completed in Drawings ledger a/c
- Net Profit balance b/d transferred to Cr side of Capital a/c
- Double entry completed in Profit/Loss ledger
How are drawings of inventory recorded?
- at cost of inventory not sales price
What is the accounting equation?
Assets = Capital -Liabilities
‘capital + profit -liabilities’ what is this part of the equations called?
owners/proprietors interest
