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Trial Balance - A Starting Point for Final Accounts:

The trial balance is simply a list of ledger accounts balances at the end of an accounting period. This summary of the ledger at the end of an accounting period, is a convenient starting point in the preparation of the final accounts i.e. trading and profit and loss account and balance sheet.

A trial balance usually contains the following types of balances:

  1. Balances from expenses accounts
     

  2. Balances from revenue accounts
     

  3. Balances from assets accounts
     

  4. balances from liabilities accounts
     

  5. Balances from capital or owner's equity account

The first two types of balances are transferred to trading and profit and loss account to find out profit or loss.

The other three types of balances are transferred to the balance sheet to know the financial position of the business.

Thus we prepare from the trial balance a trading and profit and loss account by matching revenue balance with expenses balances and by the time we have finished, we have very much smaller trial balance, which is then arranged into a balance sheet.

so:

Profit = Revenue - All expenses

Definition and Explanation of Final Accounts
Trial Balance - A Starting Point for Final Accounts
Meanings and Sources of Revenue
Direct and Indirect Expenses
Matching Revenue and Expenses
Trading Account
Profit and Loss Account
Difference between Trading Account and Profit and Loss Account
Difference between Gross Profit and Net Profit
Balance Sheet
Difference between Trial Balance and Balance Sheet
Example of Trading and Profit and Loss Account and Balance Sheet




 

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