Introduction

Financial accounting follows a well-defined, sequential activity: it begins with the Journal (journalising every transaction), moves to the Ledger (posting those entries into individual accounts), and reaches its first stage of summarisation with the preparation of the Trial Balance (balancing every account and checking that debits equal credits).

This chapter takes up the next step in that sequence: the preparation of financial statements. Along the way, it looks at the different information requirements of the various stakeholders in a business, the important distinction between capital and revenue items and why it matters, and the nature of financial statements themselves — along with how they are actually prepared.