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.