Chapter 4.

Preparing basic
financial statement

DOAN THUY DUONG

SAA
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 Chapter 4: Preparing basic
financial statement

Learning Content
1 The trial balance

2 Balancing off ledger

3 Preparing basic financial statement

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 1. The trial balance

 At the end of period, an initial trial balance is

extracted. It is list of all the nominal ledger
accounts’ balances at this point
 Total credit balance to be compared with total
debit balance and must be equal.
 After the initial trial balance is extracted, we
need to make adjustments for errors (detailed in
chapter 6) or for the transactions inccurring
afterward through adjustment journals to
produce the final trial balance.
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 2.Balancing off ledger account

 Once all adjustments have been posted, the accounts in the

nominal ledger are balanced off. Balancing the account is done in
5 stages
 Add up both sides to find out their totals. Note: do not write
anything in the account at this stage
 Deduct the smaller total from the larger total to find the balance
 Now enter the balance on the side with the smallest total. This
now means the totals will be equal
 Enter totals level with each other
 Now enter the balance on the line below the totals on the
opposide side to the balance shown above the totals
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 Cash at bank Account

Capital 20,000 Van 5,000

Sale 1 3,500 Purchases 12,000
Sale 2 800 Rent 300
Balance carried down 7,000
24,300 24,300
Balance brought down 7,000
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 3. Preparing the financial statement

 There are two options to prepare financial

statment
 Create profit and loss account (P&L account)
 Create extended trial balance (ETB)

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 Create P&L ledger account
- P& L account is in the nominal ledger, part of
the double entry system
 Tranfering all income and and expense
account to the P&L account

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 Using extended trial balance (ETB)

 An extended trial balance is a standard trial balance to which are

added columns extending to the right, and in which are listed the
following categories:
 Initial balances: These are the nominal account totals as of the end of
the accounting period. The total of all initial balance debits should
equal the total of all initial balance credits.
 Adjusting journal entries
 Income statement balances. These are the revenue, expense, gain,
and loss accounts used to create the the statement of comprehensive
income
 Balance sheet balances. These are the asset, liability, and equity
accounts used to create the statement of financial position.
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 Question 1

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 Question 2

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 Question 3

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