At the end of each year, the bookkeeping system produces two statements (directly from the Trial Balance). Let us assume that we are concerned with the year ending on December 12, xx. The two statements will be:
Statement 1 - The Profit and Loss Statement for the year ending December 31, xx.
Statement 2 - The Balance Sheet as on December 31, xx.
The Profit and Loss Statement
In principle, it is important in the normal T account, when the debit side organizes all the accounts that end with the words "….Expense Account" while the credit side organizes all the accounts that end with the words "…. Receipts Account" and it is indeed logical that the Financial Statement is the total of all the receipts less the total expenses (Take care, as the Profit and Loss Accounts refers to a period of a year and not to the last day of the year. In other words. The Profit and Loss Statements is for the year ending on December 31, xx and does not show what the profit/loss was on the last day only, but for the entire year ending on December 31, xx)
In principle go back to the normal T account where the debit side shows what assets belonged to the business while the credit side shows the obligations that the business has to other agencies.
Take care, as distinct from the Profit and Loss Statement that refers to the "Year ending December 31,xx" the Balance Sheet shows a photograph of the situation on the last day only.
Transfer from the Trial Balance
We will go back to the Trial Balance (Balances) on the previous pages. Every balance will be transferred to the Profit and Loss Statement (if an expenses/receipts account is concerned) or to the Balance Sheet, while an iron rule that must be strictly observed is - "a balance cannot change its character" (in other words, a debit balance in the Trial Balance must be transferred to the debit side, whether on the Profit and Loss Statement or on the Balance Sheet, similarly a credit balance in the Trial Balance must appear only on the credit side, whether on the Profit and Loss Statement or on the Balance Sheet.
Bank Reconciliation Salaries Tax Deduction at Source Value added tax
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