Session 4 From trial balance to financial statements
　　Main Contents:
　　1.Accounting cycle
　　2.Balancing off ledger accounts
　　3.The trial balance
　　4.Closing off ledger accounts
　　5.Prepare financial statements
　　4.1 Accounting cycle
　　4.2 Balancing off a ledger account
　　Once the transactions for a period have been recorded, it will be necessary to find the balance on the ledger accounts:
　　1.Total both sides of the T account and find the larger total.
　　2.Put the larger total in the total box on the debit side and credit side.
　　3.Insert a balancing figure to the side of the T account which does not currently add up to the amount in, the total box.Call this balancing figure ‘balance c/f’ (carried forward) or “balance c/d” (carried down).
　　4.Carry the balance diagonally and call it “balance b/f” (brought forward) or “balance b/d” (brought down).
　　4.3 The trial balance
　　● Once all ledger accounts have been balance off a trial balance is prepared.
　　● A trial balance is a list of the “balance b/f” on the ledger accounts
　　according to whether they are on the debit or credit side.
　　● The trial balance will balance if for every debit entry made, an equal credit entry was made and the balances were correctly extracted and cast.
　　The purpose of a trial balance is:
　　● To check that for every debit entry made, an equal credit entry has been made
　　● As a first step in preparing the financial statements.
　　A number of adjustments will be made after the trial balance is extracted.These adjustments do not therefore appear in the trial balance.
　　4.4 Closing off the ledger accounts
　　At the year end, the ledger accounts must be closed off in preparation for the recording of transactions in the next accounting period.
　　● SFP ledger accounts:
　　Assets /liabilities at the end of a period = Assets/ liabilities at start of the next period
　　Balancing the account will result in ---
　　a balance c/f (being the asset/liability at the end of the accounting period)
　　a balance b/f (being the asset/liability at the start of the next accounting period)
　　● I.S.ledger accounts:
　　- At the end of the period any amounts that relate to that period are transferred out of the income and expenditure accounts into another ledger account – I.S.
　　- This is done by closing the account
　　- Do not show a balance c/f or balance b/f, but instead put the balancing figure on the smallest side and label it “income statement”.
　　Example: Closing of revenue and expense account