Acca f3 Financial Accounting (int) Study Text

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6: From trial balance to financial statements   Part C  The use of double entry and accounting systems 

After balancing the accounts, the income and expense account should be opened. Into it should be 

transferred all the balances relating to income and expense (ie purchases, other expenses, and sales). At 

this point, the ledger accounts will be as follows. 

CASH AT BANK 

$       

$      

Capital

2,000

Trade accounts payable

3,600

Trade accounts receivable

3,200

Non-current assets

1,500

Balance c/d

   800

Other expenses

   900

6,000

6,000

Balance b/d

800*

* A credit balance b/d means that this cash item is a liability, not an asset. This indicates a bank overdraft 

of $800, with cash income of $5,200 falling short of payments of $6,000 by this amount. 

 CAPITAL 

$       

$

Balance c/d

2,600

Cash at bank

2,000

I & E a/c

   600

2,600

2,600

 TRADE 

ACCOUNTS 

PAYABLE 

$       

$

Cash at bank

3,600

Purchases

4,300

Balance c/d

   700

4,300

4,300

Balance b/d

700

 PURCHASES 

ACCOUNT 

$       

$

Trade accounts payable

4,300

I & E a/c

4,300

 NON-CURRENT 

ASSETS 

$       

$

Cash at bank

1,500

Balance c/d

1,500

Balance b/d

1,500

SALES

$       

$

I & E a/c

5,800

5,800

 

TRADE ACCOUNTS RECEIVABLE 

$       

$

Sales

5,800

Cash at bank

3,200

Balance c/d

2,600

5,800

5,800

Balance b/d

2,600

 OTHER 

EXPENSES 

$       

$      

Cash at bank

900

I & E a/c

900

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Part C  The use of double entry and accounting systems

  6:  From trial balance to financial statements

111

 

INCOME AND EXPENSE ACCOUNT 

$       

$

 Purchases account

 4,300

 Sales

 5,800

 Gross profit c/d

 1,500

 5,800

5,800

 Other expenses

 900

 Gross profit b/d

 1,500

 Net profit (transferred to capital 

   

 

account)

    600

1,500

1,500

So the income statement will be: 

INCOME STATEMENT 

FOR THE ACCOUNTING PERIOD 

$

Sales

5,800

Cost of sales (purchases)

4,300

Gross profit

1,500

Expenses

   900

Net profit

   600

Listing and then rearranging the balances on the ledger accounts gives the statement of financial position 

as:

 STATEMENT OF FINANCIAL POSITION AS AT THE END OF THE PERIOD 

Assets

$

$

Non-current assets

1,500

Current assets

   Trade accounts receivable

2,600

Total assets

4,100

Capital  and liabilities 

Capital

   At start of period

2,000

   Net profit for period

   600

   At end of period

2,600

Current liabilities

   Bank overdraft

800

   Trade accounts payable

700

1,500

Total capital and liabilities

4,100

The above example is highly detailed. This detail is given to help you to work through the example 

properly. You may wish to do things this way yourself until you get more practised in accounting 

techniques and are confident enough to take short cuts. 

The techniques are worth practising as you may well get a MCQ requiring you to calculate a figure for the 

income statement or statement of financial position from a trial balance. 

Exam focus 

point

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112

6: From trial balance to financial statements   Part C  The use of double entry and accounting systems 

Question

Opening trial balance 

Alpha has the following opening balances on its ledger accounts. 

$

Fixtures

5,000

Trade accounts receivable 

2,000

Bank account 

1,000

Loan

3,000

(a) 

What is the total assets figure? 

A $6,000 

B $5,000 

C $8,000 

D $3,000 

(b) 

What is the opening figure for capital? 

A $6,000 

B $5,000 

C $8,000 

D $3,000 

Answer

(a) 

C 

Assets =  5,000 + 2,000 + 1,000 

 = 

8,000

(b) 

B 

Capital =  assets – liabilities 

=  (5,000 + 2,000 + 1,000) – 3,000 

 = 

5,000

Chapter Roundup 

 

At suitable intervals, the entries in each 

ledger account are totalled and a balance is struck. Balances are 

usually collected in a 

trial balance which is then used as a basis for preparing an income statement and a 

statement of financial position. 

 

A trial balance can be used to 

test the accuracy of the double entry accounting records. It works by 

listing the balances on ledger accounts, some of which will be debits and some credits. The total debits 

should equal total credits. 

 An 

income and expense ledger account is opened up to gather all items relating to income and expenses. 

When

rearranged, the items make up the income statement.

 

The balances on all 

remaining ledger accounts (including the income and expense account) can be listed 

and

rearranged to form the statement of financial position.

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