Trial Balance – what next?

Trial Balance AccountDrCrPEARLSSOCISFP Capital 250,000 Sales 125,500 Inventory58,533 Machinery100,000 Vehicles65,000 Office Equipment15,800 Bank/Cash19,560 Trade Payables 77,240 Trade Receivables88,500 VAT 5,800 Telephone695 Rent12,000 Stationery550 Travel750 Purchases95,000 Electricity652 Drawings1,500 Total458,540 Closing inventory £47,852

Trial Balance AccountDrCrPEARLSSOCISFP Capital 250,000 Reserves 250,000 Sales 125,500 Sales125,500 Inventory58,533 C Asset58,533 Machinery100,000 NC Asset100,000 Vehicles65,000 NC Asset65,000 Office Equipment15,800 NC Asset15,800 Bank/Cash19,560 C Asset19,560 Trade Payables 77,240 Liability77,240 Trade Receivables88,500 C Asset88500 VAT 5,800 Liability 5,800 Telephone695 Expense695 Rent12,000 Expense12,000 Stationery550 Expense550 Travel750 Expense750 Purchases95,000 Purchases95,000 Electricity652 Expense652 Drawings1,500 (Reserves)1500 Total458,540 Closing inventory £47,852

Trial Balance AccountDrCr Capital 250,000 Sales 125,500 Inventory58,533 Machinery100,000 Vehicles65,000 Office Equipment15,800 Bank/Cash19,560 Trade Payables 77,240 Trade Receivables88,500 VAT 5,800 Telephone695 Rent12,000 Stationery550 Travel750 Purchases95,000 Electricity652 Drawings1,500 Total458,540 Closing inventory £47,852 Statement of Profit & Loss Sales Less Cost of Sales Opening Inventory PLUS Purchases LESS Closing Inventory Cost of Sales Gross Profit Less Expenses Telephone Rent Stationery Travel Electricity Net Profit

Trial Balance AccountDrCr Capital 250,000 Sales 125,500 Inventory58,533 Machinery100,000 Vehicles65,000 Office Equipment15,800 Bank/Cash19,560 Trade Payables 77,240 Trade Receivables88,500 VAT 5,800 Telephone695 Rent12,000 Stationery550 Travel750 Purchases95,000 Electricity652 Drawings1,500 Total458,540 Closing inventory £47,852 Statement of Profit & Loss Sales Less Cost of Sales Opening Inventory PLUS Purchases LESS Closing Inventory Cost of Sales Gross Profit Less Expenses Telephone Rent Stationery Travel Electricity Net Profit

Trial Balance AccountDrCr Capital 250,000 Sales 125,500 Inventory58,533 Machinery100,000 Vehicles65,000 Office Equipment15,800 Bank/Cash19,560 Trade Payables 77,240 Trade Receivables88,500 VAT 5,800 Telephone695 Rent12,000 Stationery550 Travel750 Purchases95,000 Electricity652 Drawings1,500 Total458,540 Closing stock £47,852 Statement of Profit & Loss Sales 125,500 Less Cost of Sales Opening Inventory58,533 PLUS Purchases95,000 LESS Closing Inventory 47,852 Cost of Sales 105,681 Gross Profit 19,819 Less Expenses Telephone695 Rent12000 Stationery550 Travel750 Electricity Net Profit 5,172

Trial Balance AccountDrCr Capital 250,000 Sales 125,500 Inventory58,533 Machinery100,000 Vehicles65,000 Office Equipment15,800 Bank/Cash19,560 Trade Payables 77,240 Trade Receivables88,500 VAT 5,800 Telephone695 Rent12,000 Stationery550 Travel750 Purchases95,000 Electricity652 Drawings1,500 Total458,540 Closing stock £47,852 Statement of Financial Position Non Current Assets Machinery Vehicles Office Equipment Current Assets Inventory Bank/Cash Trade Receivables Less Current Liabilities Trade Payables VAT Working Capital Net Assets Financed by Capital ADD Profit LESS Drawings

Trial Balance AccountDrCr Capital 250,000 Sales 125,500 Inventory58,533 Machinery100,000 Vehicles65,000 Office Equipment15,800 Bank/Cash19,560 Trade Payables 77,240 Trade Receivables88,500 VAT 5,800 Telephone695 Rent12,000 Stationery550 Travel750 Purchases95,000 Electricity652 Drawings1,500 Total458,540 Closing stock £47,852 Statement of Financial Position Non Current Assets Machinery Vehicles Office Equipment Current Assets Inventory Bank/Cash Trade Receivables Less Current Liabilities Trade Payables VAT Working Capital Net Assets Financed by Capital ADD Profit LESS Drawings

Trial Balance AccountDrCr Capital 250,000 Sales 125,500 Inventory58,533 Machinery100,000 Vehicles65,000 Office Equipment15,800 Bank/Cash19,560 Trade Payables 77,240 Trade Receivables88,500 VAT 5,800 Telephone695 Rent12,000 Stationery550 Travel750 Purchases95,000 Electricity652 Drawings1,500 Total458,540 Closing stock £47,852 Statement of Financial Position Non Current Assets Machinery100,000 Vehicles65,000 Office Equipment15, ,800 Current Assets Inventory47,852 Bank/Cash19,560 Trade Receivables88, ,912 Less Current Liabilities Trade Payables77,240 VAT5,800 83,040 Working Capital 72,872 Net Assets 253,672 Financed by Capital250,000 ADD Profit 5,172 LESS Drawings1,500253,672

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 pass es 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.