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Financial Statement Preparation Guide

The document outlines the process of transitioning from trial balance to financial statements, using examples from two businesses, Douglas and Ivan. It details the necessary transactions, the creation of a trial balance, and the preparation of the statement of profit or loss and statement of financial position. Additionally, it highlights potential errors that can occur in the trial balance and the steps involved in preparing financial statements.

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14.11A14. Phạm Minh Hoàng
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9 views4 pages

Financial Statement Preparation Guide

The document outlines the process of transitioning from trial balance to financial statements, using examples from two businesses, Douglas and Ivan. It details the necessary transactions, the creation of a trial balance, and the preparation of the statement of profit or loss and statement of financial position. Additionally, it highlights potential errors that can occur in the trial balance and the steps involved in preparing financial statements.

Uploaded by

14.11A14. Phạm Minh Hoàng
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Chapter 6

From trial balance to financial statements

© ACCA

Lecture example - Douglas

Douglas had the following transactions during January:


(1) Introduced $5,000 cash as capital
(2) Purchased goods on credit from Richard, worth $2,000
(3) Paid rent for one month, $500
(4) Paid electricity for one month, $200
(5) Purchased car for cash, $1,000
(6) Sold half of the goods on credit to Tish for $1,750
(7) Drew $300 for his own expenses
(8) Sold goods for cash, $2,100
Required: Post transactions (1) to (8) to the relevant ledger
accounts. © ACCA 2

1
The trial balance

• The balances are then collected in a trial balance. If the


double entry is correct, total debits = total credits.
• An example of a trial balance, incorporating the above
receivables balance, is shown on the next slide.
• Some errors not shown in the trial balance:
o The complete omission of a transaction
o Posting to correct side but wrong account
o Compensating errors
o Errors of principle

© ACCA 3

The trial balance

© ACCA 4

2
Statement of profit or loss
Statement of profit or loss
 First open up a ledger account for the statement of profit or loss.
Continuing our example for ABC Traders this ledger account is shown
below, together with the rent account to illustrate how balances are
transferred to it at the end of the year.

© ACCA

Statement of financial position 1


Statement of financial position
 The statement of financial position is prepared by following these steps.
 Balance off the accounts relating to assets and liabilities.
 Transfer the balances (per ABC Traders) on the drawings account and the
statement of profit or loss ($13,500) to the capital account as follows:

© ACCA

3
Example
The following information is available for the business of Ivan, a bookseller, in
January:
 Started business with $10,000 in business bank account
 Made purchases for $200 cash
 Further purchases for $400 on credit from Moore
 Paid rent for January of $1,000 cash
 Bought stationery for $60 cash
 Bought an old van for $4,000 from Petros promising to pay later
 Sold books to Greene for $1,000
 Paid Moore $140 cash
 Sold book on credit to Doyle for $140
 Took $300 from the business to pay for living expenses
 Received $100 from Doyle
Journalize the transactions and prepare SOPL for the month ended 31
January and SOFP at that date
© ACCA

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