the extended trial balance(Chapter_4 )

What two financial statements are produced from the information summarised in a two-column trial balance?

The statement of profit or loss and the statement of financial position.

What is the primary purpose of a statement of profit or loss?

To show the profitability and performance of the business during a specific accounting period.

What is the primary purpose of a statement of financial position?

To show what a business is worth in terms of assets, liabilities, and capital at the end of an accounting period.

The Extended Trial Balance (ETB) is a tool used to prepare which two key financial statements?

The statement of profit or loss and the statement of financial position.

Which financial statement covers a specific period of time, such as 'for the year ended 31 March 20-6'?

The statement of profit or loss.

Which financial statement shows the business's state on a single day, such as 'as at 31 March 20-6'?

The statement of financial position.

What is the most common length for an accounting period used by virtually every business?

Annually.

What is the starting point for the preparation of financial statements?

The trial balance.

Which financial statement is considered an 'account' in terms of double-entry bookkeeping?

The statement of profit or loss.

Which financial statement is not part of the double-entry system, but rather a list of remaining account balances?

The statement of financial position.

What is the first step in preparing an extended trial balance (ETB)?

Enter the trial balance details into the account name and ledger balances columns and total them.

In the ETB adjustments columns, what is the double-entry for closing inventory?

Credit the statement of profit or loss column and debit the statement of financial position column.

Which items from the trial balance are transferred to the statement of profit or loss columns in an ETB?

Opening inventory, purchases, sales, and expenses.

Which items from the trial balance are transferred to the statement of financial position columns in an ETB?

Assets, liabilities, capital, and drawings.

In the statement of profit or loss columns of an ETB, where is the balancing figure for a profit for the period entered?

On the debit side.

In the statement of profit or loss columns of an ETB, where is the balancing figure for a loss for the period entered?

On the credit side.

After calculating the profit in the SPL columns of an ETB, where is this figure transferred to in the SFP columns?

It is entered on the opposite side; a profit (debit in SPL) is credited in the SFP columns.

What does it signify when the debit and credit columns of the statement of financial position on an ETB have the same total?

It proves that the statement of financial position balances.

Which two items are entered into both the statement of profit or loss and the statement of financial position within an ETB?

Closing inventory and the profit or loss for the year.

Expenditure on the payment of expenses is known as _ expenditure.

revenue

Expenditure on the cost of non-current assets, such as premises and vehicles, is known as _ expenditure.

capital

In which financial statement is revenue expenditure shown?

The statement of profit or loss.

In which financial statement is capital expenditure shown?

The statement of financial position.

What would be the effect on profit if capital expenditure was wrongly recorded as an expense?

The profit would be understated.

To transfer the balance of the purchases account to the statement of profit or loss, what is the double-entry?

Debit the statement of profit or loss; credit the purchases account.

After year-end transfers, what should the balance on accounts for income and expenses (like sales and wages) be?

A nil balance.

The opening inventory balance is transferred from the inventory account to which financial statement?

The statement of profit or loss (as a debit).

What is the double-entry to record the closing inventory valuation in the general ledger accounts?

Debit the inventory account and credit the statement of profit or loss.

The closing inventory figure from one year becomes the _ in the next year's statement of profit or loss.

opening inventory

To transfer the total of the wages account to the statement of profit or loss, what is the double-entry?

Debit the statement of profit or loss; credit the wages account.

What is the double-entry to transfer the profit for the year to the owner's capital account?

Debit the statement of profit or loss; credit the capital account.

What is the double-entry to transfer a loss for the year to the owner's capital account?

Debit the capital account; credit the statement of profit or loss.

How does a profit for the year affect the owner's stake in the business?

It increases the owner's stake by adding to the capital account.

How does a loss for the year affect the owner's stake in the business?

It decreases the owner's stake by reducing the capital account.

At year-end, the balance on the drawings account is transferred to which other account?

The capital account.

What is the double-entry to transfer the total drawings for the year to the capital account?

Debit the capital account; credit the drawings account.

How is the closing balance of the capital account calculated at the end of the year?

Opening capital, plus profit for the year, minus drawings for the year.

The statement of financial position is made up of which types of accounts that remain with balances at the year-end?

Asset accounts, liability accounts, and the owner's capital account.

The term for financial statements, comprising the statement of profit or loss and statement of financial position, is _.

final accounts

Term: Extended Trial Balance (ETB)

Definition: A spreadsheet format used as a method of preparing financial statements, extending from the initial trial balance.