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99
TRADE
ACCOUNTS
PAYABLE
$
$
Cash at bank
3,600
Purchases
4,300
PURCHASES
$
$
Trade accounts payable
4,300
NON-CURRENT
ASSETS
$
$
Cash at bank
1,500
SALES
$
$
Trade accounts receivable
5,800
TRADE
ACCOUNTS
RECEIVABLE
$
$
Sales
5,800
Cash at bank
3,200
OTHER
EXPENSES
$
$
Cash at bank
900
The next thing to do is to balance all these accounts. After balancing the accounts, the profit or loss
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
P/L a/c
600
2,600
2,600
Balance b/d
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
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PART C: THE USE OF DOUBLE-ENTRY AND ACCOUNTING SYSTEMS
100
PURCHASES
$
$
Trade accounts payable
4,300
P/L a/c
4,300
NON-CURRENT
ASSETS
$
$
Cash at bank
1,500
Balance c/d
1,500
Balance b/d
1,500
SALES
$
$
P/L 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
P/L a/c
900
PROFIT OR LOSS ACCOUNT
$
$
Purchases
4,300 Sales
5,800
Gross profit c/d
1,500
5,800
5,800
Other expenses
900 Gross profit b/d
1,500
Profit for the year (transferred
to capital
account)
600
1,500
1,500
So the statement of profit or loss will be:
STATEMENT OF PROFIT OR LOSS FOR THE ACCOUNTING PERIOD
$
Revenue
5,800
Cost of sales (purchases)
4,300
Gross profit
1,500
Expenses
900
Profit for the year
600
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CHAPTER 6
//
FROM TRIAL BALANCE TO FINANCIAL STATEMENTS
101
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
Profit for the year 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
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
EXAM FOCUS POINT
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 are highly likely to get a question requiring you to calculate
a figure for the statement of profit or loss or statement of financial position from a trial balance,
particularly in one of the 15-mark questions.
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PART C: THE USE OF DOUBLE-ENTRY AND ACCOUNTING SYSTEMS
102
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
Two of the requirements of performance objective PO6, 'Record and process transactions and events'
are:
Implement, or effectively operate, appropriate systems to record accounting data and ensure
effective credit and vendor management and control
Verify, input, and process routine financial accounting data within the accounting system
This chapter of the Interactive Text will help you fulfil these requirements.
BPP Tutor Toolkit Copy
CHAPTER 6
//
FROM TRIAL BALANCE TO FINANCIAL STATEMENTS
103
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 a statement of profit
or loss 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.
A profit or loss ledger account is opened up to gather all items relating to income and expenses. When
rearranged, these items make up the statement of profit or loss.
The balances on all remaining ledger accounts (including the profit or loss account) can be listed and
rearranged to form the statement of financial position.
1
What is the purpose of a trial balance?
2
A trial balance may still balance if some of the balances are wrong. True or false?
3
In a period, sales are $140,000, purchases $75,000 and other expenses $25,000. What is the figure
for profit for the year to be transferred to the capital account?
A
$40,000
B
$65,000
C
$75,000
D
$140,000
4
The balance on an expense account will go to the P/L account. However, the balance on a liability
account is written off to capital.
Is this statement correct?
A Yes
B
No
5
Fill in the blank.
The balance brought forward on the bank account is a credit figure. This means that the balance is
…………….
6
Which of the following would not be identified by extracting a trial balance?
A
Two credit entries and no debit
B
One-sided entry
C
Transaction omitted completely
D
Two debit entries and no credit
CHAPTER ROUNDUP
QUICK QUIZ
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