Introduction

Chapter 8 covered the preparation of simple final accounts — a trading and profit and loss account and a balance sheet. But that preparation assumed away any of the complications that are actually normal in real business operations.

Those complications exist because determining income and financial position relies on the accrual basis of accounting: profitability has to be worked out on the basis of revenues earned (not merely received) and expenses incurred (not merely paid). Because of this, many items need some adjustment before the final financial statements can be prepared properly.