Importance of Trial Balance and Journal Entries in Preparing Financial Statements

Running head: BUSINESS ACCOUNTING
Business accounting
Name of the student
Name of the university
Author note

1BUSINESS ACCOUNTING
Executive summary
The main objective of the report is to state the importance of trial balance and journal entries
in preparing the financial statement of the company. The trial balance assists in posting the
transactions in appropriate statements like income statement and balance sheet. Further, the
journal entries assists in posting the adjustment that takes place after preparing the balance
sheet or for adjusting the prior period items.

2BUSINESS ACCOUNTING
Table of Contents
Introduction................................................................................................................................3
Step 2 – Adjustment transactions journal entries.......................................................................3
Step 3 – Posting of adjusting journal entries and completion of the worksheet........................4
Step 4 – Income statement from worksheet...............................................................................5
Step 5 – Journal entries closing the entries................................................................................6
Step 6 – Changes in equity statement from worksheet..............................................................6
Step 7..........................................................................................................................................9
1) Trial balance and the purpose of creation....................................................................9
2) Adjusting journal entries and its purpose of recording.............................................10
3) Purpose of writing the adjusted trial balance............................................................11
4) Adjustment journal entries as against the closing journal entries.............................12
Conclusion................................................................................................................................13
References................................................................................................................................14

3BUSINESS ACCOUNTING
Introduction
Trial balance is generally prepared at closing of the accounting period and assists in
drafting the financial statements. It assures that every recorded debit entry has a
corresponding credit entry and is recorded in the account as per double entry accounting
concept. A journal entry refers to the financial transactions that have been incurred by the
business unit during a particular financial year (Warren and Jones 2018). On the other hand,
the adjusting journal entry refers to those particular journal entries that have been included in
the financial report at the end of a particular financial year as because the revenue or
expenses associated with those journal entries have not been recognized at the time of
generation.
Step 2 – Adjustment transactions journal entries
Journal Entries under the books of Paul services
For the period ended on 30th June, 2016
Date Particulars
Acc
No.
Amount
(Dr.)
Amount
(Cr.)
30-Jun-16 Interest Expense 201 18,920
Interest Payable 201 18,920
(To record interest accrued on mortgage)
30-Jun-16 Supplies Expense 201 1,417
Supplies 115 1,417
(To record supplies used during the period)
30-Jun-16 Insurance Expense 201 3,024
Prepaid Insurance 120 3,024
(To record prepaid amortisation)
30-Jun-16 Depreciation Expense - Furniture ((47300-7300)/5) 201 8,000
Acc. Depreciation. - Furniture 137 8,000
(To record depreciation expense for the period)