Preparing Final Accounts from a Trial Balance

Preparing Trading and Profit and Loss Account and Balance Sheet from a Trial Balance

Every item in a Trial Balance goes to EXACTLY ONE of three places — the Trading Account, the Profit and Loss Account, or the Balance Sheet. The method:

1. Trading Account items: Opening Stock, Purchases (less Purchase Returns), Sales (less Sales Returns), Direct Expenses (Wages, Carriage Inward/Freight Inward, Octroi, Import Duty, Fuel and Power, Royalty on Production), Closing Stock (given as additional information OUTSIDE the Trial Balance — covered in more depth as an adjustment in Part II, but appears directly in a basic problem too).
2. Profit and Loss Account items: all Indirect Expenses (Salaries, Rent, Printing and Stationery, Advertisement, Carriage Outward, Discount Allowed, Bad Debts, Interest Paid, Depreciation) and all Indirect Incomes (Discount Received, Commission Received, Interest Received, Rent Received).
3. Balance Sheet items: every Fixed Asset, every Current Asset (Debtors, Bills Receivable, Cash, Bank), every Liability (Creditors, Bills Payable, Loans), Capital, and Drawings.