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The document defines key accounting concepts and financial statements including the income statement, balance sheet, adjusted trial balance, closing trial balance, and depreciation. It provides the format and preparation method for each along with examples and sources for further information.

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Khuwaja sahab
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10 views4 pages

Safeer AI

The document defines key accounting concepts and financial statements including the income statement, balance sheet, adjusted trial balance, closing trial balance, and depreciation. It provides the format and preparation method for each along with examples and sources for further information.

Uploaded by

Khuwaja sahab
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Safeer AI

● Income Statement: This is a financial statement that shows the revenue,


expenses, and net income or loss of a business for a given period of
time. The format of an income statement is:
Income Statement

Revenue

- Sales revenue

- Other revenue

Less: Expenses

- Cost of goods sold

- Operating expenses

- Non-operating expenses

- Income tax expense

Net Income (Loss)

The method of preparing an income statement is to list all the revenue and expense accounts from the
adjusted trial balance and calculate the total revenue, total expenses, and net income or loss by subtracting
the expenses from the revenue. 1 2

● Balance Sheet: This is a financial statement that shows the assets,


liabilities, and equity of a business at a given date. The format of a
balance sheet is:
Balance Sheet

Assets

- Current assets

- Non-current assets

Total Assets

Liabilities

- Current liabilities

- Non-current liabilities
Total Liabilities

Equity

- Share capital

- Retained earnings

- Other equity items

Total Equity

The method of preparing a balance sheet is to list all the asset, liability, and
equity accounts from the adjusted trial balance and calculate the total assets,
total liabilities, and total equity. The balance sheet must follow the accounting
equation: Assets = Liabilities + Equity. 3 4

● Adjusted Trial Balance: This is a list of all the accounts and their balances
after adjusting entries have been made at the end of an accounting
period. The format of an adjusted trial balance is:

| Adjusted Trial Balance | | :--- | :--- | :--- | | Account Name | Debit | Credit | |
Cash | xxx | | | Accounts Receivable | xxx | | | ... | ... | ... | | Accounts Payable | |
xxx | | Salaries Payable | | xxx | | ... | ... | ... | | Common Stock | | xxx | | Retained
Earnings | | xxx | | ... | ... | ... | | Total | xxx | xxx |

The method of preparing an adjusted trial balance is to either include the


adjusting entries into the ledger accounts and then list the account balances,
or include the adjusting entries directly into the unadjusted trial balance. The
total of the debit and credit columns must be equal. 5 6

● Closing Trial Balance: This is a list of all the accounts and their balances
after closing entries have been made at the end of an accounting
period. The format of a closing trial balance is similar to that of an
adjusted trial balance, except that it only includes balance sheet
accounts. The method of preparing a closing trial balance is to transfer
the balances of the revenue, expense, and dividend accounts to the
retained earnings account, and then list the balances of the remaining
accounts. The total of the debit and credit columns must be equal. 7 8
● Depreciation from Straight Line Method: This is a method of allocating the cost of a fixed asset over its
useful life in equal amounts. The formula for calculating the annual depreciation expense using
theafeer straight line method is:

The method of recording depreciation using the straight line method is to


debit the depreciation expense account and credit the accumulated
depreciation account for the amount of depreciation calculated. The
accumulated depreciation account is a contra-asset account that reduces the
book value of the asset on the balance sheet. 9 10

● Theory from Closing Process of Depreciation: The closing process of


depreciation is the process of transferring the depreciation expense
account balance to the retained earnings account at the end of an
accounting period. The purpose of this process is to close the temporary
accounts (revenue, expense, and dividend accounts) and update the
permanent accounts (asset, liability, and equity accounts) for the next
period. The theory behind this process is to match the revenues and
expenses of each period and report the net income or loss on the
income statement, and to reflect the changes in the equity of the
business on the statement of retained earnings and the balance sheet. 11

12

I hope this helps you understand the topics better. If you have any questions,
please let me know. 😊.

Source(s)
1. Adjusted trial balance - explanation, format, example | Accounting For ...
2. 4.5 Prepare Financial Statements Using the Adjusted Trial Balance ...
3. How To Prepare an Adjusted Trial Balance (With Example)
4. Adjusted Trial Balance – Meaning, Format, Importance and Example
5. Adjusted Trial Balance | Format | Preparation | Example Explanation
6. Income Statement - Definition, Explanation and Examples
7. How to Prepare an Income Statement | HBS Online
8. How To Prepare An Income Statement: Step-By-Step Guide - FreshBooks
9. Understanding Income Statements - CFA Institute
10. Balance Sheet - Format, Explanation and Example - Accounting For Management
11. Format of Balance Sheet (explained with pdf) - Accounting Capital
12. How To Create a Balance Sheet (With Template and Example)
13. How To Create a Balance Sheet: Required Sections and Formats
14. Types of balance sheets — AccountingTools
15. 3.6 Prepare a Trial Balance - Principles of Accounting ... - OpenStax
16. Trial Balance Format - Preparation, Rules, Methods and Advantages - Vedantu
17. What is Trial Balance? definition, format, methods and adjusted trial ...
18. Post-Closing Trial Balance: Definition, Example and FAQs
19. What Is a Post-Closing Trial Balance? (With Example and FAQs)
20. Straight Line Depreciation - Formula, Definition and Examples
21. Straight Line Basis Calculation Explained, With Example - Investopedia
22. Straight Line Method (SLM): Formula, Accounting Entries, Solved ... - Toppr
23. en.wikipedia.org

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