Acca f3 Financial Accounting (int) Study Text
Part C The use of double entry and accounting systems
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Part C The use of double entry and accounting systems 6: From trial balance to financial statements 103
$ $ Cash at bank 6,500
Capital 7,000
Bank loan 1,000
Purchases 5,000
Trade accounts payable –
– Rent
3,500 Shop fittings 2,000 Sales
12,500 Trade accounts receivable – –
Bank loan interest 100
Other expenses 1,900
Drawings 1,500
20,500 20,500
This is called a trial balance. It does not matter in what order the various accounts are listed. It is just a method used to test the accuracy of the double entry bookkeeping. 1.4 What if the trial balance shows unequal debit and credit balances? A trial balance can be used to test the accuracy of the accounting records. It lists the balances on ledger accounts and totals them. Total debits should equal total credits. If the two columns of the list are not equal, there must be an error in recording the transactions in the accounts. A list of account balances, however, will
(a) The
complete omission of a transaction, because neither a debit nor a credit is made. (b)
The posting of a debit or credit to the correct side of the ledger, but to a wrong account. (c)
Compensating errors (eg an error of $100 is exactly cancelled by another $100 error elsewhere). (d)
Errors of principle, eg cash from receivables being debited to trade accounts receivable and credited to cash at bank instead of the other way round. 1.5 Example: Trial balance As at 30.3.20X7, your business has the following balances on its ledger accounts. Accounts Balance $ Bank loan 12,000 Cash at bank 11,700 Capital
13,000 Local business taxes 1,880 Trade accounts payable 11,200 Purchases 12,400 Sales
14,600 Sundry payables 1,620 Trade accounts receivable 12,000 Bank loan interest 1,400 Other expenses 11,020 Vehicles
2,020 During the year the business made the following transactions. (a) Bought materials for $1,000, half for cash and half on credit (b) Made $1,040 sales, $800 of which was for credit (c) Paid wages to shop assistants of $260 in cash You are required to draw up a trial balance showing the balances as at the end of 31.3.X7. FAST FORWARD 104 6: From trial balance to financial statements Part C The use of double entry and accounting systems Solution First it is necessary to decide which of the original balances are debits and which are credits. Account Dr Cr $ $ Bank loan (liability) 12,000
Cash at bank (asset; overdraft = liability) 11,700
Capital (liability) 13,000
Local taxes (expense) 1,880
Trade accounts payable (liability) 11,200
Purchases (expense) 12,400
Sales (revenue) 14,600
Sundry payables (liability) 1,620
Trade accounts receivable (asset) 12,000
Bank loan interest (expenses) 1,400
Other expenses 11,020
Vehicles (non-current asset) 2,020
52,420 52,420
Now we must take account of the effects of the three transactions which took place on 31.3.X7.
$ $ (a) DEBIT Purchases 1,000
CREDIT Cash at bank
500
Trade accounts payable 500
(b) DEBIT
Cash at bank 240
Trade accounts receivable 800
CREDIT Sales
1,040 (c) DEBIT Other expenses 260
CREDIT
Cash at bank
260 When these figures are included in the trial balance, it becomes: Account Dr Cr $ $ Bank loan 12,000
Cash at bank (11,700 + 240 – 500 – 260) 11,180
Capital 13,000
Local taxes 1,880
Trade accounts payable (11,200 + 500) 11,700
Purchases (12,400 + 1,000) 13,400
Sales (14,600 + 1,040) 15,640
Sundry payables 1,620
Trade accounts receivable (12,000 + 800) 12,800
Bank loan interest 1,400
Other expenses (11,020 + 260) 11,280
Vehicles 2,020
53,960 53,960
2 The income statement An
When rearranged, these items make up the
The first step in the process of preparing the financial statements is to open up another ledger account, called the
gathering together all the ledger account balances relating to the income statement. This account is still FAST FORWARD Yüklə 3,78 Mb. Dostları ilə paylaş:
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