LESSON 14: To produce a set of accounts all your softwa Articles

LESSON 14: To produce a set of accounts all your software does is rearrange the Trial Balance. Here’s how it works

  The Trial Balance contains all the data for preparing a set of accounts. From here the totals displayed for each account, which make up the Trial Balance, can simply be rearranged to produce your Profit & Loss Account, and your Balance Sheet. The figures in the Trial Balance shown previously, for the bakery, have been […]

14.1 How positive and negative numbers are displayed in a set of accounts

 Look at the Profit and Loss Account first. The first three lines report sales. Lines below those report costs. We know that sales are negative figures (or credits). But wouldn’t it be confusing to people without the specialist understanding that you now have of the double entry system and accounting logic to start a Profit […]

14.2 How all the information in your entire accounting system is crammed neatly into your Balance Sheet

 In our bakery example, the first fifteen accounts in the Trial Balance, from ‘Bakery equipment’ to ‘HP Liabilities – long’ form the top part of the Balance Sheet. These accounts represent what the business owns, and what it owes to suppliers, government, lenders etc. We have already seen how these accounts are grouped into Fixed […]

14.3 Producing the Profit and Loss Account to reveal how the profit was earned

 Now let’s turn our attention to the Profit and Loss Account. We said the ‘Profit and Loss this year’ shown in the Balance Sheet is the condensed total of all the profit-and-loss-type accounts, from Sales to Depreciation. In the Balance Sheet this is shown as a single total. However it is clearly of great importance […]

14.4 How all your Profit and Loss ‘counters’ are reset to zero as you move from one year to the next

 For the sake of completion here is what happens to the Profit and Loss Account at the start of the next financial year. Because the measurement of profit runs on an annual cycle, at the end of the financial year all the profit-and-loss-type accounts are cleared down to zero, ready to start measuring income and […]

14.5 Presentation of aberrant figures in a set of accounts

 There are occasions on which we need to show that an amount has to be deducted from its neighbours in a Profit and Loss Account or Balance Sheet. For example, look at the Current Liabilities section of the Balance Sheet. The third item in the list is ‘VAT 24,800′. This means the business owes the […]

14.6 Key points

 The Trial Balance is a critical step in turning your accounting records into a set of accounts. It is a product of using the double entry system and plays a key role in preventing errors creeping into your accounts. This is because, simply, the two columns of the Trial Balance must add up to the […]