2nd Edition by Edwin Olima FCCA
Now that we have accounted for every transaction that has occurred during the period, we should prepare a list of values and balances representing all the flows into the business and flows out of the business. This list is called a trial balance.
Exercise: Use your (corrected) answers in the previous chapters to prepare your list of values and balances according to the following format. The first two entries have been done for you. Use the tips provided below.
THE COMPANY LIMITED – TRIAL BALANCE AS AT 31ST DECEMBER 3000
Detail of Transactions
Flow In [Debit]
Flow Out [Credit]
Purchases of goods
Interest on cash left on deposit
Share Capital Invested and owned by you
Bank Account Balance
VAT Account Balance
Employer NIC expense
Tax & NIC due to the Government
Net Pay due to employee
Tips on producing the trial balance:
· Using the sales invoice list, enter sales at their values net of VAT . Have the goods sold flowed out of the business?
· Using the purchases invoice list, enter purchases at their values net of VAT . Did the goods /services purchased flow into the business? Enter each different sundry item in its separate row.
· List balances of trade debtors and trade creditors at their gross values as at 31st December 3000 . Will cash flow in or out of the business in respect of these items?
· Using the bank analysis sheets, extract the receipts (excluding receipts for sales invoices ) and payments (excluding the payments for purchases invoices ) and put them in your trial balance . List each sundry item in its separate row.
· List only the final balance on the bank account and the VAT account as at 31st December 3000 . With regard to the account balances consider if they represent benefits/resources that are in the business or that will flow into the business. Or do they represent resources that will flow out of the business and put them in the relevant column?
· Also list your wages and salaries as indicated in that chapter – expense and liability.
· The interest received reflects income from the service of lending (depositing) money to the bank. The debit side of this transaction is already included in the bank balance.
· Do not forget to enter the value of the share capital that you put into the business which is now owed to you by The Company Limited.
· DO NOT list closing stock separately yet as it is already included in purchases for the year.
Total up the two columns and the totals should equal each other (i.e. they should balance) as proof that you have accounted correctly for all transactions! Try again if they do not.
Compare your answer to the one at the back of the book.