LO 4 5 Prepare Financial Statements Using the Adjusted Trial Balance v2 Principles of Accounting Financial Accounting

To prepare the financial statements, a company will look at the adjusted trial balance for account information. From this information, the company will begin constructing each of the statements, beginning with the income statement. The statement of retained earnings will include beginning retained earnings, any net income (loss) (found on the income statement), and dividends. The balance sheet is going to include assets, contra assets, liabilities, and stockholder equity accounts, including ending retained earnings and common stock. To prepare the financial statements, a company will look at the

adjusted trial balance for account information. From this

information, the company will begin constructing each of the

statements, beginning with the income statement.

Financial analysts will create a depreciation schedule when performing financial modeling to track the total depreciation over an asset’s life. The following is the adjusted trial balance of Maggie’s Music Shop. Insurance policies can require advanced payment of fees for

several months at a time, six months, for example. The company does

not use all six months of insurance immediately but over the course

of the six months. At the end of each month, the company needs to

record the amount of insurance expired during that month.

Trial Balance:

Since fixed assets have a debit balance on the balance sheet, accumulated depreciation must have a credit balance, in order to properly offset the fixed assets. Thus, accumulated depreciation appears as a negative figure within the long-term assets section of the balance sheet, immediately below the fixed assets line item. If the closing stock appears within the trial balance, it means the adjustment for the closing stock has already been made.

Accruals are expenses and revenues that gradually accumulate throughout an accounting period. Accrued expenses relate to such things as salaries, interest, rent, utilities, and so forth. Accrued revenues subcontractor billing requirement might relate to such events as client services that are based on hours worked. The balance sheet is classifying the accounts by type of

accounts, assets and contra assets, liabilities, and equity.

Accumulated Depreciation vs. Accelerated Depreciation

Unearned revenue had a credit balance of $4,000 in the trial

balance column, and a debit adjustment of $600 in the adjustment

column. Remember that adding debits and credits is like adding

positive and negative numbers. This means the $600 debit is

subtracted from the $4,000 credit to get a credit balance of $3,400

that is translated to the adjusted trial balance column. Each entry has one income statement account and one

balance sheet account, and cash does not appear in either of the

adjusting entries.

Dividends are taken away from the sum of beginning retained earnings and net income to get the ending retained earnings balance of $4,565 for January. This ending retained earnings balance is transferred to the balance sheet. In the Printing Plus case, the credit side is the higher figure

at $10,240. This means

revenues exceed expenses, thus giving the company a net income. If

the debit column were larger, this would mean the expenses were

larger than revenues, leading to a net loss. You want to calculate

the net income and enter it onto the worksheet.

Accounting treatment of depreciation

The building is expected to be useful for 20 years with a value of $10,000 at the end of the 20th year. The depreciable base for the building is $240,000 ($250,000 – $10,000). Divided over 20 years, the company would recognized $20,000 of accumulated depreciation every year.

The depreciation can also be considered a credit to the accumulated depreciation account. Since there are several types of errors that trial balances fail to uncover, each closing entry must be journalized and posted carefully. Dear @nabinhait we have facing issue in our trial balance accumulated depreciation credit amount not refelecting in trail balance. For example, Celadon Group misreported revenues over the span of three years and elevated earnings during those years. This gross misreporting misled investors and led to the removal of Celadon Group from the New York Stock Exchange.