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Preparing Basic Financial Statements

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Preparing Basic Financial Statements

The process of preparing financial statements

The basic financial reporting process is as follows:

Year-end adjustments to the initial trial balance

As well as adjusting the trial balance figures for any errors identified there are also a number of common adjustments made at the end of the accounting period. These include:

These adjustments need to be processed before the financial statements can be created.

Common year-end adjustments

The following is a list of some of the common year-end adjustments that would be made prior to preparing the financial statements:

(i) Closing inventory

Dr Inventory (SFP)

Cr Cost of sales (IS)

(ii) Depreciation charge for the year

Dr Depreciation expense (IS)

Cr Accumulated depreciation (SFP)

(iii) Accruals (chapter 10)

Dr Expenses (IS)

Cr Accrual (Liability) (SFP)

(iv) Prepayments

Dr Prepayment (Current Asset) (SFP)

Cr Expenses (IS)

(v) Irrecoverable debts

Dr Irrecoverable debt expense (IS)

Cr Receivables (SFP)

(vi) Allowance for receivables

Increase in allowance:

Dr Irrecoverable debt expense (IS)

Cr Allowance for receivables (SFP)

Decrease in allowance:

Dr Allowance for receivables (SFP)

Cr Irrecoverable debt expense (IS)

(vii) Tax estimate for the year

Dr Tax charge (IS)

Cr Current tax liabilities (SFP)

(viii) Adjustments for prior year tax estimates

Overprovision in prior year:

Dr Current tax provision (SFP)

Cr Tax charge for the year (IS)

Underprovision in prior year:

Dr Tax charge for the year (IS)

Cr Current tax provision (SFP)

IAS 1 Presentation of Financial Statements

The required formats for published company financial statements are provided by IAS1. This requires the following components to be presented:

Created at 10/25/2012 11:50 AM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
Last modified at 12/17/2013 2:46 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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ACCAPEDIA - Preparing Basic Financial Statements