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notes - Coggle Diagram
notes
FINANCIAL STATEMENTS
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Statement of Financial Position Statement of Profit and Loss
What it shows
The worth of the business —
assets, liabilities and capital — at
one point in time
Trading activity (income and
expenses) across a whole period
Analogy A snapshot — a single photograph A video — footage across the whole
period
Heading style 'As at' a specific date 'For the year/month ended' a
specific date
Feeds into Shows the up-to-date capital
balance, including this period's profit
Its final profit figure is carried into
the SOFP's capital section
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TRIAL BALANCE
a list of all balance sin the ledger at the end of a period, split those accounts into debit balances and those with credit balances
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method of internal control to check on the arithmetic accuracy of the ledger, helps identify errors and starting point for preparing financial statements
key points
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a bank account can have a credit balance, represneting an over
six types of error:
Commission: An entry is posted to the correct type of account, but the wrong specific
account (e.g. a payment posted to the wrong customer's account).
• Omission: A transaction is left out of the accounting records completely, so neither a
debit nor a credit is recorded.
• Principle: An entry is posted to the wrong class of account entirely (e.g. capital
expenditure recorded as a revenue expense, or vice versa).
• Compensating: Two unrelated errors happen to cancel each other out by an equal
amount, so the totals still agree.
• Original entry: The correct accounts are used, but the wrong amount is entered on both
the debit and credit sides.
• Reversal of entries: The debit and credit entries for a transaction are recorded on the
wrong side of each other (swapped).
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BALANCING AN ACCOUNT
finding difference between the total debit entries and total credit entries in a ledger account so that an account shows a single, up to date balance
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400*4 = 1600 (left T account), c/d = 1600, b/d = 1600