Accounting Practices 501

Chapter 10

Introduction to financial statements

Cathy Saenger, Senior Lecturer, Eastern Institute of Technology © Pearson 2011

At year-end (31 March)

1. Prepare the trial balance from the General Ledger

2. Do the balance day adjustments

3. Prepare the adjusted trial balance

4. Prepare the financial statements from the adjusted trial balance

5. Prepare the closing entries

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At start of new period (1 April)

1. Prepare the reversing entries in the new accounting period

2. Transfer the Inventory amount to Opening inventory

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Financial Statements

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Let’s look at the classification of accounts to

be able to transfer the amounts to the correct financial statements

Classification

• Current Assets – CA

• Non-current Assets – NCA

• Current Liabilities – CL

• Non-current Liabilities – NCL

• Equity – OE

• Income (main source) – I

• Other Income – OI

• Selling Expenses – SE

• Admin Expenses – AE

• Finance Expenses – FE

• Cost of Sales – COS

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Balance Sheet

Income statement

Balance Day Adjustments

Prepaid Expense - CA

Accrued Expense - CL

Income in Advance - CL

Accrued Income - CA

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Can you classify the items on the following slide? The accounts are in

alphabetical order

Accounts Receivable

15,000

Accounts Payable 7,000

Acc Deprec - Vehicles

2,000

Accrued expenses 14,000

Accrued income 5,000

Advertising 3,000

Bank $20,000

Capital 28,000

Closing inventory 15,000

Commission income 15,000

Drawings 8,000

Furniture 10,000

Inventory 15,000

Opening inventory 4,000

PAYE payable 1,000

Prepaid expenses 1,000

Purchases 37,000

Rent expense 12,000

Sales 90,000

Vehicles 20,000

Wages 22,000Ch10A - Intro to fin st 7

Dr CrAdjusted Trial balance at year-end

$172,000

CA

CL

CA

COS

NCA

OE-

I

COS

AE

SE

OE

COS

CA

NCA

NCA-

CL

AE

CA

OI

CACL

$172,000

• We can now transfer all the amounts to the Statements

• Red goes to the Income Statement to calculate the Profit or Loss

• Blue goes to the Balance Sheet

• All equity items are also transferred to the Statement of Changes in Equity

Ch10A - Intro to fin st 8

And … here’s hoping we balance!!!

ASSETS

=LIABILITIES + EQUITY