Trial Balance and Financial Statements

Trial Balance

A trial balance is a list of ledger balances at a point in the accounting cycle, prepared to verify that total debit balances equal total credit balances.

Account	Debit (Rs.)	Credit (Rs.)
Cash	50,000	–
Accounts receivable	30,000	–
Equipment	200,000	–
Accounts payable	–	40,000
Bank loan	–	100,000
Capital	–	120,000
Revenue	–	80,000
Salaries expense	40,000	–
Rent expense	20,000	–
Total	340,000	340,000

Illustrative trial balance

Equality is necessary but does not prove complete accuracy. A trial balance may not reveal complete omission, use of the wrong account of the same class, an error of accounting principle, equal compensating errors, or an original-entry error posted equally to both sides.

Income Statement

The income statement reports financial performance over a period by matching recognized income with expenses.

Item	Amount (Rs.)
Revenue (sales)	500,000
Less: cost of goods sold	(300,000)
Gross profit	200,000
Salaries expense	(80,000)
Rent expense	(24,000)
Depreciation expense	(20,000)
Utilities expense	(16,000)
Operating profit (EBIT)	60,000
Interest expense	(10,000)
Profit before tax	50,000
Income tax at 25%	(12,500)
Net profit	37,500

Illustrative income statement

Balance Sheet / Statement of Financial Position

The balance sheet reports assets, liabilities, and equity at a specific date.

Assets	Rs.	Liabilities and equity	Rs.
Current assets		Current liabilities
Cash	50,000	Accounts payable	40,000
Accounts receivable	30,000	Short-term loan	20,000
Inventory	40,000	Total current liabilities	60,000
Total current assets	120,000
		Non-current liabilities
Equipment at cost	200,000	Bank loan	100,000
Less: accumulated depreciation	(40,000)
Net equipment	160,000	Owner’s equity
		Capital	120,000
		Retained earnings	–
Total assets	280,000	Total liabilities and equity	280,000

Illustrative statement of financial position.