Can I make a couple of suggestions? Can you get rid of the horrible green - will make it a bit easier to read! Also - rather than expecting someone to answer the whole question - have a go at putting down your suggestions and then commentary can be provided to help.

I take it you are not a bookkeeper and have your own business, from previous posts. Admirable that you want to understand what goes on. Can I ask what course you are doing/where you are up to and where this question is from?

Apologies for the format, that is how it has come when copied & pasted, I try and edit it.

I Have had a go at correcting the trial balance and heres how far I have got, so would appreciate some feedback.

Sorry the formatting won't work so putting C or D next to each entry

Trade debtors 16000 D

Trade creditors 18000 C

Purchases (accounts payable) 65000 D

Invoiced sales 174000 C

Opening stock 1/3/x7 21000 D

Loans from directors repayable 28/2/Y3 27000 C

Bank Overdraft 28000 C

Equipment & furnishings (cost) 25000 D

Premises (cost) 100000 D

Accumulated depn on equipment 1/3/X7 15000 C

Motor vehicles (cost) 34000 D

Accumulated deprecetion on vehicles 1/3/x7 14000 C

share capital 70000 C

investment in Albert Muffett Limited 70000 D

Directors salaries 20000 D

Shop salaries 12000 D

Administration expense 6000  D

Promotion expenses 21000  D

Interest paid to bank 2000 D

Profit & loss account 1/3/x7 46000 C

392000 392000 both accounts match

-- Edited by mcelec on Friday 19th of February 2016 05:17:39 PM

I have had a go at correcting the formatting of the original post to make it a bit more readable.

I'm not expecting anyone to do all the work for me, just some guidance would be greatly appreciated.

mcelec wrote:

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Joanne,

You are right I'm not a bookkeeper, I'm a manager within a business, and I want to have a better understanding of finance, so that when I'm passed accounts and management reports I can have a greater understanding rather than looking at the net profit at the bottom.

I Have signed up to a course online, link below:

www.stonebridge.uk.com/course/finance-and-accounting

This is the 2nd of six assignments, the first assignment was really straightforward, it was analysing a P&L statement and providing feedback on where money could be saved based upon a scenario as in this question.

This question however is proving a little more difficult, I understand that the trial balance sheet is a summary of accounts to check for errors before producing a P&L statement (or at least thats my interpretation) but I'm struggling with differentiating between the Credit & Debit columns, the idea that income & liabilities could be linked, and assets and expenses, has all left me a little confused, but I have had a go as above.

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 Really impressed that you want to learn, being able to read and understanding a set of accounts and what is behind them, is a very important skill that not enough people master.  ive not looked at the course content, the link didn't work for me although I started to look independently and then the phone calls hit.  The fundamentals of what is a debit v what is a credit is key and I hope they have taught you that......I used DeadClic as Johnny has mentioned as an aid to remember Which goes where, although after a short while it becomes second nature.

Well done on balancing......just remember that the trial balance can balance and it still be incorrect so always go back over things to make sure you have them right.

A hint on the extended TB.....start with your figures in a spreadsheet in a debit and credit column,  then make adjustments in separate dr/cr columns for the items they wish you to process, finishing with two columns for the final, ie extended TB. Eg for the prepaid insurance, you will need to reduce the admin expense by the amount paid in advance......this figure becomes a prepayment in the balance sheet.  so you need to work out which is a debit and which is a credit for the TB. 

Does ypur our course cover ratios of any description? An important tool in any kind of financial analysis. Plus always remember turnover is vanity, profit is sanity and cash is king! 

 

Hi Mark
I really could do with my second screen to help answer this as my cursor is up and down the page, and as one screen is not yet linked up I will have to try to make do and hope I get some of the numbers right. Quick lesson in some basics (very much basics)

Assets and expenses are increased by debits
Liabilities and income and increased by credits

Every entry will have a debit side and a credit side. eg if you pay for premises from the bank you will have a debit to premises (ie increasing the amount) and a credit to the Bank (decreasing the amount). Note in the this example you have a debit AND a credit to the assets side of the accounting equation of Capital = Assets - Liabilities (or Assets = Capital + Liabilities - its a maths thing!)

Your TB in the example given is actually at the year end - see the date on the top and the question notes (except the stock figure). BUT The Trial balance doesnt balance as things are in the wrong column so the first thing is to put them in the right columns and balance it. (NB I havent checked it, but at quick glance you do need to revisit it as the balance overall WILL be different than that given in the example! Plus your balance sheet Im sorry to say looks considerably out even if you base it on the first TB before the adjustments you need to make in the following question).

Then the question is asking to make some further adjustments that need to be completed prior to the work that you need to do to produce the P&L and Balance Sheet. This is what Johnny and I referred to as the extended TB. So first put your existing TB is a spreadsheet. Then make the adjustments. So add another debit and credit column and head it up adjustments. I will give you an example based on my earlier hint:-

1) Admin expenses includes £1,500 for insurance paid a year in advance on November 1, 19X7. if you pay your house insurance it is all paid in advance isnt it. Business insurance is the same. What you need to do is allocate some of that expense to one financial year and the rest to another financial year - this is dependent on when the financial year ends and when the insurance is paid. So in Nov it was all paid in advance. By the year end (end of Feb) then insurance for Nov, Dec, Jan and Feb was relating to the year you are assessing ie the year end you are looking at, therefore the rest of it was paid in advance ie the 'advance' part is NOT an expense in that financial year so needs to be stripped out. So first of all work out how much is prepaid (£1500 / 12 x 8months left =£1000, ie only £500 relates to this financial year). So in the next two columns of your spreadsheet you need to make any debit and credit adjustments. So to reduce your admin expenses by the prepaid amount you would need to put £1000 in which column?

(its a credit cos you are reducing the expenses bill by the amount you have paid in advance!)

So then you need a debit entry. So where to put that? It actually goes into an account called prepayments - so add a line to your trial balance spreadsheet and stick the debit in it in the debit section in the adjustments columns. (the first two columns will have a nil in both debits and credits in your case, although in reality thats unlikely!)

Not sure if you have covered much on prepayments and accruals but the test indicates you should have and therefore might know already that prepayments are classed as current assets (hint for when you do the balance sheet part)

So once you have sorted all the other adjustments you will then add a final set of two columns (one for each of the debits and credits) for you to produce your final TB.

Once you have this you can produce your P&L (do this first) and then your balance sheet.

Do you understand what the heading are for a P&L and TB? Assuming you do - break it down rather than trying to lump it all together as you did in your Balance sheet as this will highlight if you have anything wrong.

I have to say Mark - looking at the syllabus, which doesnt tell you much, if you are trying to do this sort of stuff after just two lessons then I think the course is completely wrong to give you the basics. Sorry to say! I might be wrong as I do not know how much reading/learning material they have given you, but its reached this stage very quickly! You might be better even with a couple of text books that Shaun has mentioned a few times in the past or even perhaps get them to supplement your learning.

Call to Shaun - can you help me out on which ones they are please. I really should drop them into a note somewhere as we have to talk about them so much, although I know the orderline at Amazon is probably in your favourites!!!!!!!!

Hi All,

I'm still struggling but have been busy in work with it being near month end, I plan to spend the weekend trying to complete this assignment and see how I get on.

I Will keep you all posted, I'm determined to get my head round it, I have watched so many videos on youtube and read a lot of online content and have just purchased Alex Byrne Practical accounts and bookkeeping.

Prior to this I always thought I had a good understanding of accounts because I'm used to receiving management reports and accounts, obviously I have a good understanding of the end figures but I now have a greater respect for the hard work in compiling this information, because I'm really struggling to do something which is most likely really simple and obvious to you guys.

I'm hoping it will click in the end

Thanks, any links for good books would be appreciated, I have actually ordered another one which has arrived in the post today, Financial Management for Non Specialists by Peter Atrill.

 

Closing stock should be seen twice. Once as a debit to SFP, other as credit to SPL.

So I have added the closing stock twice now for it to balance (see attached pic)

But do I appear to have everything in the correct columns? and have I got the adjustments correct so far?

Am I going blind Johnny, I can't see the closing stock figure?

Have we been given the whole question?

Where you have accountants journals - you've two entries for opening stock. Remove those you don't need them.

Right I have taken out the duplication of opening balances in the journals section, as per the attached screenshot.

Any advice would be appreciated, I think I'm getting the adjustments all wrong!

I Dont want to annoy anyone by keeping on asking, but does this P&L look correct? do the adjustments look correct?

Thanks in advance

abacus12345 wrote:

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On your profit and loss you need items such as Opening stock - Purchases - Sales - Expenses - Interest paid / received etc. Assets and liabilities along with equity go to the BS. Don't forget tax and dividend also, as mentioned up above.

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Just a few questions:

1. Does the opening stock go on the P&L as a debit and the closing stock as a credit?

2. Does the tax go in the P&L or just the balance sheet as it is a liability?

3. Does the dividends go in the P&L the same way wages do?

 

Thanks

 

Still trying....

I Have tried to clean it up a little to make it easier to read and so I have combined Trade Debtors and invoiced sales in to Turnover, and Creditors & purchases in to COGS.

I have placed the tax in the P&L but I'm not sure if it should be in here or the balance sheet, would you consider it an operating expense or a liability?

The depreciation section I could really do if knowing if I have got it right, I have calculated the depreciation from cost and put this in to the P&L and then put the cost value in the balance sheet along with the accumulated depreciation costs.

Am I correct in putting the Dividend in the P&L?

And I could really do with someone looking at the admin expense adjustments for me and letting me know if I'm on the right track?

I genuinely do appreciate everyones input, I wouldn't have got this far without the nudging in the right direction from this forum.

abacus12345 wrote:

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Debtors and creditors will go to BS as these are assets and liabilities.

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 So they go to the balance sheet, and the purchases & invoiced sales go on the P&L statement?

 

The trading section of the PL in this case (as there are no returns etc) is made up of - sales. COGS is - opening plus purchases less closing. Gross profit is Sales less COGS.

abacus12345 wrote:

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The trading section of the PL in this case (as there are no returns etc) is made up of - sales. COGS is - opening plus purchases less closing. Gross profit is Sales less COGS.

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 Ah I just seen this after my previous post, yes I get both amounts to match

 

Ok, good stuff. Now calculate the expenses of the company, which go to PL to arrive at net profit. Net profit is GP less all expenses.

Sales                                        174000

Purchases              65000
Opening                 21000
Closing                 (28000)

COGS                                      (58000)

Gross Profit                              116000