Comments on: Financial Statements - Trial Balance http://www.accountingunplugged.com/2008/09/05/financial-statements-trial-balance/ The System Behind the Software Thu, 18 Mar 2010 17:40:15 +0000 http://wordpress.org/?v=2.6.5 By: Francis Larocque http://www.accountingunplugged.com/2008/09/05/financial-statements-trial-balance/#comment-1478 Francis Larocque Tue, 13 Oct 2009 19:02:55 +0000 http://accountingetc.wordpress.com/?p=345#comment-1478 You've done a great job! All this complex information is so well explained. Even though I'm a professional accountant, I learned quite a few interesting things by reading those articles. I can't wait to see more contents on internal control, financial analysis, and budgets. Thank you! You’ve done a great job! All this complex information is so well explained. Even though I’m a professional accountant, I learned quite a few interesting things by reading those articles. I can’t wait to see more contents on internal control, financial analysis, and budgets.

Thank you!

]]> By: Yogi http://www.accountingunplugged.com/2008/09/05/financial-statements-trial-balance/#comment-1433 Yogi Sun, 30 Aug 2009 21:28:04 +0000 http://accountingetc.wordpress.com/?p=345#comment-1433 This website was a real situation saver. I am a student, was searching for material that could easily illustrate concepts, and lo behold, here it was on your website...:) With much appreciation ! Thanks ! This website was a real situation saver.
I am a student, was searching for material that could easily illustrate concepts, and lo behold, here it was on your website…:)

With much appreciation !

Thanks !

]]> By: admin http://www.accountingunplugged.com/2008/09/05/financial-statements-trial-balance/#comment-1106 admin Tue, 21 Apr 2009 19:14:25 +0000 http://accountingetc.wordpress.com/?p=345#comment-1106 The purpose of this site is basic accounting, I am pleased to have questions to answer. The Balance Sheet doesn’t actually balance until net income is posted to retained earnings at the end of the year. When you read a Balance Sheet notice the entry at the bottom for net income. Net income is not an account, it is a calculation which, on the Balance Sheet, is actually the difference between the Balance Sheet account balances for the current year. Net Income = Difference between either the Income Statement Accounts, or the difference between the Balance Sheet Accounts for the current year only. Retained Earnings = cumulative net income for all prior years - cumulative distributions to owners (stockholders) for all years. The purpose of this site is basic accounting, I am pleased to have questions to answer.

The Balance Sheet doesn’t actually balance until net income is posted to retained earnings at the end of the year.

When you read a Balance Sheet notice the entry at the bottom for net income. Net income is not an account, it is a calculation which, on the Balance Sheet, is actually the difference between the Balance Sheet account balances for the current year.

Net Income = Difference between either the Income Statement Accounts, or the difference between the Balance Sheet Accounts for the current year only.

Retained Earnings = cumulative net income for all prior years - cumulative distributions to owners (stockholders) for all years.

]]> By: john http://www.accountingunplugged.com/2008/09/05/financial-statements-trial-balance/#comment-1100 john Tue, 21 Apr 2009 18:26:10 +0000 http://accountingetc.wordpress.com/?p=345#comment-1100 What about retained earnings, won't that be in Balance sheet every month? If it is not in BS then how can balance sheet balance without it? Sorry if I am talking basic accounting. What about retained earnings, won’t that be in Balance sheet every month? If it is not in BS then how can balance sheet balance without it? Sorry if I am talking basic accounting.

]]> By: admin http://www.accountingunplugged.com/2008/09/05/financial-statements-trial-balance/#comment-1097 admin Tue, 21 Apr 2009 16:31:53 +0000 http://accountingetc.wordpress.com/?p=345#comment-1097 The Trial Balance must have a zero balance because it includes all financial accounts and their balances and in double entry accounting debits must always equal credits. The Trial Balance shows balances for each account BUT the point major point of the statement is to show that your books are in balance, meaning that your total debits equal your total credits. The Income Statement and Balance Sheet split the accounts between them - all accounts are Either on the Income Statement OR on the Balance Sheet. Net Income can be calculated by taking the difference of the account balances for either the Income Statement or the Balance Sheet. Because those two statements split all accounts between them, the difference between the account balances for the Income Statement will be the same as the difference between the account balances for the Balance Sheet. That difference is Net Income. Net Income is not a financial account, it is a result of a calculation and it is shown at the bottom of the Income Statement (Revenue - Costs - Expenses = Net Income) and at the bottom of the Balance Sheet (Assets - Liabilities - Owners Equity (Stock) - Retained Earnings = Net Income). At the end of each fiscal (business) year, the Net Income amount is posted into a financial account (either Owners Equity or Retained Earnings). The closing entry that posts Net Income to a Balance Sheet Equity account also resets all Income Statement accounts to zero. This closing entry takes the balances for all Income Statement accounts at year end and: Debits the balances of all Revenue Accounts Credits the balances of all Cost Accounts Credits the balances of all Expense Accounts Credits (or Debits in the case of a net loss) the difference (Revenue - Costs - Expenses) to Retained Earnings (or Owners Equity for a non C Corp in the US) Hope this clarifies things a bit The Trial Balance must have a zero balance because it includes all financial accounts and their balances and in double entry accounting debits must always equal credits.

The Trial Balance shows balances for each account BUT the point major point of the statement is to show that your books are in balance, meaning that your total debits equal your total credits.

The Income Statement and Balance Sheet split the accounts between them - all accounts are Either on the Income Statement OR on the Balance Sheet.

Net Income can be calculated by taking the difference of the account balances for either the Income Statement or the Balance Sheet. Because those two statements split all accounts between them, the difference between the account balances for the Income Statement will be the same as the difference between the account balances for the Balance Sheet. That difference is Net Income.

Net Income is not a financial account, it is a result of a calculation and it is shown at the bottom of the Income Statement (Revenue - Costs - Expenses = Net Income) and at the bottom of the Balance Sheet (Assets - Liabilities - Owners Equity (Stock) - Retained Earnings = Net Income).

At the end of each fiscal (business) year, the Net Income amount is posted into a financial account (either Owners Equity or Retained Earnings). The closing entry that posts Net Income to a Balance Sheet Equity account also resets all Income Statement accounts to zero.

This closing entry takes the balances for all Income Statement accounts at year end and:

Debits the balances of all Revenue Accounts
Credits the balances of all Cost Accounts
Credits the balances of all Expense Accounts
Credits (or Debits in the case of a net loss) the difference (Revenue - Costs - Expenses) to Retained Earnings (or Owners Equity for a non C Corp in the US)

Hope this clarifies things a bit

]]> By: John http://www.accountingunplugged.com/2008/09/05/financial-statements-trial-balance/#comment-1095 John Tue, 21 Apr 2009 15:16:16 +0000 http://accountingetc.wordpress.com/?p=345#comment-1095 Does trial balance have to zero balance? Because from my understanding that at the end it gives you Net Incomce (G/L) and it is in Income statment and goes to Balance sheet. Please clarify. Thanks Does trial balance have to zero balance? Because from my understanding that at the end it gives you Net Incomce (G/L) and it is in Income statment and goes to Balance sheet. Please clarify.

Thanks

]]> By: admin http://www.accountingunplugged.com/2008/09/05/financial-statements-trial-balance/#comment-474 admin Thu, 02 Apr 2009 13:36:26 +0000 http://accountingetc.wordpress.com/?p=345#comment-474 Ardi, Accounts with a zero balance are not required to be stated on any of the financial reports. I included it on the Trial Balance here only because I had given examples that involved the Accounts Receivable account and I wanted to show the balances for all accounts from my examples. Erin Ardi,

Accounts with a zero balance are not required to be stated on any of the financial reports. I included it on the Trial Balance here only because I had given examples that involved the Accounts Receivable account and I wanted to show the balances for all accounts from my examples.

Erin

]]> By: Ardi http://www.accountingunplugged.com/2008/09/05/financial-statements-trial-balance/#comment-472 Ardi Thu, 02 Apr 2009 08:51:05 +0000 http://accountingetc.wordpress.com/?p=345#comment-472 In the sample above, why the Accounts Receivable, which is $0, must be stated or written in the report? In the sample above, why the Accounts Receivable, which is $0, must be stated or written in the report?

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