Topic 9

From Trial Balance to Financial Statements

Session Objectives
Identify the purpose of a trial balance Extract ledger balances into a trial balance Prepare extracts of an opening trial balance Identify and understand the limitations of a trial balance Illustrate process of adjusting the financial statements for accruals and prepayments, depreciation, irrecoverable debts and allowances for receivables

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Student Notes for ACCA F3-Financial Accounting

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Student Notes for ACCA F3-Financial Accounting

Trial Balance
Trial balance is a statement of general ledger accounts that enables an accountant to confirm whether amounts debited equal amounts credited.

Purpose of Trial Balance

Check that for every debit entry there is an equal credit entry It is the first step towards preparation of financial statements

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Student Notes for ACCA F3-Financial Accounting

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Student Notes for ACCA F3-Financial Accounting

Limitations of Trial Balance

Trial balance does not identify all the errors. It does not identify where those errors have been made or what those errors are

Adjustments Required
Closing inventory Depreciation Accruals Prepayments Irrecoverable Debts Allowance for Receivables

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Student Notes for ACCA F3-Financial Accounting

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Student Notes for ACCA F3-Financial Accounting

Adjustments Entry for Closing Inventory

Dr. Inventory Cr. Cost of Sales (Balance Sheet) (Income Statement)

Adjustments Entry for Depreciation

Dr. Depreciation Expenses Cr. Accumulated Depreciation (Income Statement) (Balance Sheet)

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Student Notes for ACCA F3-Financial Accounting

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Student Notes for ACCA F3-Financial Accounting

Adjustments Entry for Accruals

Dr. Expenses Cr. Accrual (Income Statement) (Balance Sheet)

Adjustments Entry for Prepayments

Dr. Prepayments Cr. Expenses (Balance Sheet) (Income Statement)

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Student Notes for ACCA F3-Financial Accounting

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Student Notes for ACCA F3-Financial Accounting

Adjustments Entry for Irrecoverable Debts

Dr. Irrecoverable debt Cr. Receivables (Income Statement) (Balance Sheet)

Adjustments Entry for Allowance for Receivables

Dr. Irrecoverable debt Cr. Allowance for Receivables (Income Statement) (Balance Sheet)

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Student Notes for ACCA F3-Financial Accounting

accountingclassroom.com 2008

Student Notes for ACCA F3-Financial Accounting