Sadia Hussain Unit 8
Extended trial balance - M3
Why the extended trial balance is used to make adjustments to the accounts
“The extended trial balance is a working paper that’s used as a basis for
preparing the profit and loss account and the statement of financial position at
the end of the financial period.” The extended trial balance is the next stage
from the trial balance; it is used for preparing the profit and loss account and
the financial statement, the trial balance does not contain all the information
that is needed to produce the final accounts.
The extended trial balance contains six columns, two columns for adjustments
for credit and debit, two for profit and loss, and two for the balance sheet. The
extended trial balance is used to make adjustments to the accounts at the end
of each period. The adjustment entries include closing stock, prepayment,
accruals, depreciation and bad and doubtful debts.
The adjustment entries are made to make the financial information up to date.
For example, in the ledger accounts the amount that is entered in the
expenses is the amount that the business needs to pay, it is not always paid,
which is why the adjustment entries made, to make the information up to
date. “For example, if you owe workers $900 and they have not been paid, you
would debit salary expense for $900 and credit salaries payable for $900 to
show the expense and liability you owe.” By using the adjustments, businesses
can save a lot of time from reopening the accounts.
Adjustments - Errors /Stock
Stock can be bought and it can also be manufactured. Adjustments to the stock
have to make because some stock can still be in production and be unfinished,
in the trial balance it does not show if the stock has been produced or still
being produced so the company has to make these adjustments using the
extended trial balance, this affects the profit levels within a business because if
the business pays for the supplies and they do receive them, then the business
will not make the revenue from the stock they purchases.
There are many errors in the trial balance that need to be recorded in the
extended trial balance, for example, If the trial balance does not balance, such
as if the credits are higher than the debts, this needs to be corrected using the
extended trial balance before the profit and loss statements are made. Errors
in the trial balance can affect the profit levels because if the expenses are
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