EMS262S
LECTURER: LISA NQALA
TOPIC: ADJUSTMENTS TO FINANCIAL
STATEMENTS
FINANCIAL STATEMENTS
STEP 1
TRIAL BALANCE
• A list of closing balances of ledger account on a specific dates and it is the first step towards
preparation of financial statements
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It is prepared on a yearly basis
It has a debit and a credit column
Assets and expenses are recoded on the debit side
Capital and income are recorded on the credit side
If all the ledger accounts are correct It will balance, the debit side will be equal to the credit side
Adjustment trial balances
• Pre-adjustment trial balance: it is prepaid before taking into account the
adjustments.
• Post –adjustment trial balance: it is prepared after taking into account
adjustments.
• Post closing adjustment trial balance: it is prepared after the closing
journal entries have been posted to the ledger accounts.
Adjustments on financial statements
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Prepaid expenses- current assets (statement of financial position)
Accrued expenses- current liability (statement of financial position)
Income received in advance- current liability (statement of financial position)
Accrued income- current liability (statement of financial position)
Credit losses- expense (statement of comprehensive income)
Depreciation-expense (statement of comprehensive income)
Compiling of statement of comprehensive
income(income statement)
• Statement of comprehensive income shows results of operating activities for
the financial year/period.
• Profit and loss.
Format of STATEMENT OF COMPREHENSIVE INCOME (Income statement)
XYZ LIMITED
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR-ENDED 28 FEBRUARY 2020 :
(Sales – sales return – discount allowed)
XXX
Cost of Sales
(XXX)
Gross Profit
XXX
Other operating income XXX
- Rent income
XXX
-Commission income
XXX
- Discount received
XXX
- Gross operating income
XXX
Expenses
(XXX)
- Depreciation
XX
- Salaries and wages
XX
-Stationery expense
XXX
Profit before tax
XXX
-Taxation
XXX
Operating profit
XXX
-Investment income
XXX
- Dividends received
XXX
- Interest income
XXX
-Finance costs
XXX
(Interest)
Net profit for the year XXX
STATEMENT OF FINANCIAL
POSITION(BALANCE SHEET)
The statement of financial position shows the financial position of the
business at a particular date.
It has three elements:
• Assets,
• Liabilities, and
• Equity
XYZ LIMITED
STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2020
(FORMAT)
ASSETS:
NON-CURRENT ASSETS:
Buildings
Machinery
Equipment
CURRENT ASSETS:
Debtors
Bank
Prepaid expenses
accrued income
consumable store
TOTAL ASSETS
EQUITY AND LIABILITIES:
OWNERS EQUITY
Capital
Net profit
Drawings
NON-CURRENT LIABILITIES:
Long term loan
CURRENT LIABILITIES:
Creditors
Accrued expenses
Income received in advance
Short term loan
Total equity and liabilities