Trial balance
In the trial balance, all the ledger account balances at the end of the accounting period are listed. The key role of the trial balance is to ascertain if the transactions are properly posted in the various ledger accounts. If the debit and the credit balance of the trial balance are equal, then there is an indication that all entries are correct. However, there are some errors that cannot be detected even if the balances in the trial balance agree. Detection of errors in the trial balance occurs if the debit and credit entries are not in agreement. This shows that there are some incorrect entries made in the ledger accounts. Such incorrect entries may create a problem when preparing the final statements. Companies are not mandated to prepare the trial balance. However, it is necessary to prepare it because it facilitates the preparation of the correct financial statements. In the recent years, the role of bookkeeping has been replaced by the use of advanced accounting software. This has eliminated the need of preparing a trial balance. The trial balance for the company is presented in the table below.
Bamba Trading
Trial balance
As at 31st March 2011:
Income statement
The income statement is significant and needs to be prepared by all businesses, irrespective of the size of the business. However, the arrangement of items in the income statement will differ depending on the intricate nature of an entity. The income statement is vital because it gives information on the profitability of the business at the end of the financial year. Specifically, the statement shows the revenues and gains and expenses and losses. Under revenues and gains, the items that are shown are the revenues from the main and secondary activities that are carried out by the business. The gains comprise of items such as gains from the sale of items of property, plant and equipment, and gains from litigations among others. Under expenses and losses, the items that are recorded are the amounts spent on the key and secondary activities. Also, items such as loss incurred from the sale of items of property, plant and equipment, and gains from litigations among others. Thus, the income statement does not show the amount of money received for goods sold or amount paid by the company for various expenses. If the revenues and gains exceed expenses and losses, then the company will have a profit. On the other hand, if expenses and losses exceed revenues and gains, then the company will have a loss. The profitability of a company is important to all stakeholders of an organization. The income statement of the company is presented below.
Bamba Trading
Income statement
As at 31st March 2011:
The calculations show that the net income generated by the business at the end of the period amounts to 15,934.
Balance sheet
The final statement that will be prepared is the balance sheet. The balance sheet gives information on the financial standing at the end of the financial year. In a snapshot, a stakeholder can be able to see the assets owned by the company, the amount that the company owes other players, the amount of capital available in the company and the capital providers. The three main components of the statement of financial position are assets, liabilities, and the owner’s equity. It is worth mentioning that there are sets of accounting standards that give guidelines on how the financial statements of a company should be prepared. Therefore, a company needs to the accounting standard to use. The table presented below shows the balance sheet of the company.
Bamba Trading
Balance sheet
As at 31st March 2011:
From the calculations, the total assets amount to 94,976, the total liabilities amounts to 19,428 while the capital totals to 75,548.