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Trial Balance – what next?
Trial BalanceAccount Dr Cr PEARLS SOCI SFP
Capital 250,000Sales 125,500Inventory 58,533 Machinery 100,000 Vehicles 65,000 Office Equipment 15,800 Bank/Cash 19,560 Trade Payables 77,240Trade Receivables 88,500 VAT 5,800Telephone 695 Rent 12,000 Stationery 550 Travel 750 Purchases 95,000 Electricity 652 Drawings 1,500 Total 458,540 458,540 Closing inventory £47,852
Trial BalanceAccount Dr Cr PEARLS SOCI SFP
Capital 250,000 Reserves 250,000Sales 125,500 Sales 125,500 Inventory 58,533 C Asset 58,533Machinery 100,000 NC Asset 100,000Vehicles 65,000 NC Asset 65,000Office Equipment 15,800 NC Asset 15,800Bank/Cash 19,560 C Asset 19,560Trade Payables 77,240 Liability 77,240Trade Receivables 88,500 C Asset 88500 VAT 5,800 Liability 5,800Telephone 695 Expense 695 Rent 12,000 Expense 12,000 Stationery 550 Expense 550 Travel 750 Expense 750 Purchases 95,000 Purchases 95,000 Electricity 652 Expense 652 Drawings 1,500 (Reserves) 1500 Total 458,540 458,540 Closing inventory £47,852
Trial BalanceAccount Dr Cr
Capital 250,000Sales 125,500Inventory 58,533 Machinery 100,000 Vehicles 65,000 Office Equipment 15,800 Bank/Cash 19,560 Trade Payables 77,240Trade Receivables 88,500 VAT 5,800Telephone 695 Rent 12,000 Stationery 550 Travel 750 Purchases 95,000 Electricity 652 Drawings 1,500 Total 458,540 458,540Closing inventory £47,852
Statement of Profit & Loss
Sales
Less Cost of Sales
Opening Inventory
PLUS PurchasesLESS Closing Inventory
Cost of Sales
Gross Profit
Less Expenses
Telephone
Rent
Stationery
Travel
Electricity
Net Profit
Trial BalanceAccount Dr Cr
Capital 250,000Sales 125,500Inventory 58,533 Machinery 100,000 Vehicles 65,000 Office Equipment 15,800 Bank/Cash 19,560 Trade Payables 77,240Trade Receivables 88,500 VAT 5,800Telephone 695 Rent 12,000 Stationery 550 Travel 750 Purchases 95,000 Electricity 652 Drawings 1,500 Total 458,540 458,540Closing inventory £47,852
Statement of Profit & Loss
Sales
Less Cost of Sales
Opening Inventory
PLUS PurchasesLESS Closing Inventory
Cost of Sales
Gross Profit
Less Expenses
Telephone
Rent
Stationery
Travel
Electricity
Net Profit
Trial BalanceAccount Dr Cr
Capital 250,000Sales 125,500Inventory 58,533 Machinery 100,000 Vehicles 65,000 Office Equipment 15,800 Bank/Cash 19,560 Trade Payables 77,240Trade Receivables 88,500 VAT 5,800Telephone 695 Rent 12,000 Stationery 550 Travel 750 Purchases 95,000 Electricity 652 Drawings 1,500 Total 458,540 458,540Closing stock £47,852
Statement of Profit & Loss
Sales 125,500
Less Cost of Sales
Opening Inventory 58,533
PLUS Purchases 95,000 LESS Closing Inventory 47,852
Cost of Sales 105,681
Gross Profit 19,819
Less Expenses
Telephone 695
Rent 12000
Stationery 550
Travel 750
Electricity 652
14647
Net Profit 5,172
Trial BalanceAccount Dr Cr
Capital 250,000Sales 125,500Inventory 58,533 Machinery 100,000 Vehicles 65,000 Office Equipment 15,800 Bank/Cash 19,560 Trade Payables 77,240Trade Receivables 88,500 VAT 5,800Telephone 695 Rent 12,000 Stationery 550 Travel 750 Purchases 95,000 Electricity 652 Drawings 1,500 Total 458,540 458,540Closing stock £47,852
Statement of Financial PositionNon Current AssetsMachineryVehicles
Office Equipment Current AssetsInventoryBank/CashTrade Receivables Less Current LiabilitiesTrade PayablesVAT Working Capital Net Assets Financed byCapital
ADD ProfitLESS Drawings
Trial BalanceAccount Dr Cr
Capital 250,000Sales 125,500Inventory 58,533 Machinery 100,000 Vehicles 65,000 Office Equipment 15,800 Bank/Cash 19,560 Trade Payables 77,240Trade Receivables 88,500 VAT 5,800Telephone 695 Rent 12,000 Stationery 550 Travel 750 Purchases 95,000 Electricity 652 Drawings 1,500 Total 458,540 458,540Closing stock £47,852
Statement of Financial PositionNon Current AssetsMachineryVehicles
Office Equipment Current AssetsInventoryBank/CashTrade Receivables Less Current LiabilitiesTrade PayablesVAT Working Capital Net Assets Financed byCapital
ADD ProfitLESS Drawings
Trial BalanceAccount Dr Cr
Capital 250,000Sales 125,500Inventory 58,533 Machinery 100,000 Vehicles 65,000 Office Equipment 15,800 Bank/Cash 19,560 Trade Payables 77,240Trade Receivables 88,500 VAT 5,800Telephone 695 Rent 12,000 Stationery 550 Travel 750 Purchases 95,000 Electricity 652 Drawings 1,500 Total 458,540 458,540Closing stock £47,852
Statement of Financial PositionNon Current Assets Machinery 100,000 Vehicles 65,000
Office Equipment 15,800 180,800Current Assets Inventory 47,852 Bank/Cash 19,560 Trade Receivables 88,500 155,912Less Current Liabilities Trade Payables 77,240 VAT 5,800 83,040Working Capital 72,872 Net Assets 253,672 Financed by Capital 250,000
ADD Profit 5,172 LESS Drawings 1,500 253,672
W2S1 Practice Questions
Accounting Concepts
Money Measurement
Going Concern
Business Entity
Accruals
Prudence
Realisation
Objectivity
Dual Aspect
Materiality
Historical Cost
ConsistancyChoose a term
This assumes that a business will continue to
trade in the future.
Going Concern
Realisation
Business transactions are recorded in the financial statements when
the legal title passes between buyer and seller
This may well not be at the same time as payment is made, e.g. credit sales are recorded when the sale is made, but payment will be make at a later date
Consistancy
The same principles must be used for every set of accounts that is prepared.
For example, depreciation must always be set at the same percentage. This means that different sets of accounts can easily be compared to see trends and growth rates.
Prudence
Accountants should be cautious in their estimates and valuations.
For example if revenue were to be over-estimated dividends may appear to be due to shareholders that have not actually been earned.
Dual Aspect
Duality dictates that every transaction has two effects.
For example, if a company buys a new asset such as a new printing machine, then fixed assets must be shown to increase and either cash/liabilities must also show an decrease/increase.
Accruals
Sales and costs are considered to be incurred at the point that the sale/cost occurs, rather than when the payment
is made.
This means that sales which have been secured, perhaps in the form of orders taken but not yet delivered, will not be taken into account.
Money Measurement
All items are expressed in the common denominator of money.
Only by using money can items be added together to give for example, profit for the year or a total for the statement of financial position
Historical Cost
Assets and liabilities are initially recorded in the financial statements
at historical cost
ie the actual amount of the transactions (note some businesses may adopt a policy of regular revaluation of assets)
Business Entity
Financial transactions from one person or group of people should be isolated
from other unrelated transactions from the same person or group.
For example, a sole trader may be withdrawing money for their salary but this would be classed as two transactions because the owner is receiving money and the business is paying out money.
Objectivity
The presentation of financial statements should be based on
FACT
It should not be influenenced by the opinions or personal expectaions of the owner/owners of the business concerned, or the accountant preparing the accounts.
Materiality
This is about the relative importance of individual transactions.
Most parties will only be interested in significant amounts. This means that lots of low value sales for one customer could be combined together. However if combining transactions could mislead the user of the accounts the amounts should be split out.
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