Preparing the income statement from a trial balance

For income statements, we use For the Year Ended Nonetheless, some annual income statements omit the "For the Year Ended" phrase. From the trial balance, we will look for and report all income or revenue accounts. If you need a review on that topic, you may visit this lesson: Elements of Accounting. In the adjusted trial balance above, there is only one revenue account - Service Revenue. Note: If there are multiple revenue accounts, you need to list them down and take the sum total of all revenues.

From the adjusted trial balance again, we will take all expenses and include them in the report. Once they are all listed, we will get the sum of all the expenses. It is a good practice to list the expenses from highest to lowest whenever possible.

This allows better analysis of company expenses. Drawing a horizontal line means that a mathematical operation has been performed. The line after indicates that we took the sum of all expenses which amounts to 8, Review the annual report of Stora Enso which is an international company that utilizes the illustrated format in presenting its Balance Sheet, also called the Statement of Financial Position.

The Balance Sheet is found on page 31 of the report. Some of the biggest differences that occur on financial statements prepared under US GAAP versus IFRS relate primarily to measurement or timing issues: in other words, how a transaction is valued and when it is recorded. The column worksheet is an all-in-one spreadsheet showing the transition of account information from the trial balance through the financial statements.

Accountants use the column worksheet to help calculate end-of-period adjustments. Using a column worksheet is an optional step companies may use in their accounting process.

There are five sets of columns, each set having a column for debit and credit, for a total of 10 columns. The five column sets are the trial balance, adjustments, adjusted trial balance, income statement, and the balance sheet. After a company posts its day-to-day journal entries, it can begin transferring that information to the trial balance columns of the column worksheet.

The trial balance information for Printing Plus is shown previously. Once the trial balance information is on the worksheet, the next step is to fill in the adjusting information from the posted adjusted journal entries. The next step is to record information in the adjusted trial balance columns. To get the numbers in these columns, you take the number in the trial balance column and add or subtract any number found in the adjustment column.

Remember that adding debits and credits is like adding positive and negative numbers. You will do the same process for all accounts. Once all accounts have balances in the adjusted trial balance columns, add the debits and credits to make sure they are equal.

If you check the adjusted trial balance for Printing Plus, you will see the same equal balance is present. Next you will take all of the figures in the adjusted trial balance columns and carry them over to either the income statement columns or the balance sheet columns. Take a couple of minutes and fill in the income statement and balance sheet columns.

Total them when you are done. Do not panic when they do not balance. They will not balance at this time. Looking at the income statement columns, we see that all revenue and expense accounts are listed in either the debit or credit column. This is a reminder that the income statement itself does not organize information into debits and credits, but we do use this presentation on a column worksheet. You will notice that when debit and credit income statement columns are totaled, the balances are not the same.

Why do they not balance? If the debit and credit columns equal each other, it means the expenses equal the revenues. This would happen if a company broke even, meaning the company did not make or lose any money. If there is a difference between the two numbers, that difference is the amount of net income, or net loss, the company has earned. The credit side represents revenues. This means revenues exceed expenses, thus giving the company a net income.

The totals, both in debit and credit, as a consequence of this alternate way to record the provision, increased from 28 to 29 Aside from these minor transformations, it is the same trial balance which we reached at the end of the lessons on adjustements. And since we are in the first accounting cycle, I added an "Opening stocks IS" account with debit 0, because in future accounting cycles the Trial balances will always have with an "Opening stocks" account.

Two accounts: "Amortization IS" measuring a loss of value of our assets, even though no cash or money, or value, is exchanged with the ROW at the time of this recording it was done in the past ; and "Amortization BS" which is the other part of the double-entry. Provisions for bad or doubtful clients. Two accounts: "Provisions BS" which is the other side of the double-entry I treated it here rather than directly in the "Client account".

We see only the debit part in "Prepayments"; the credit part was taken care of directly in the "Shop expenses account". Again we see only one part, the credit part, in the account "Accruals"; the debit part was taken care of directly in the "Shop expenses account". Post all the indirect incomes such as commission received, rent received, dividend received, etc on the credit side of the income statement.

Consider all the necessary adjustments , if any, such as outstanding and prepaid expenses, outstanding and pre-received income, reserve for doubtful debts. Calculate depreciation and amortization on the assets and post the amount on the debit side. Now, find out the net profit or net loss. Tuesday, January 11, What is the process of preparing income statement from trial balance? Steps to prepare Income Statement from Trial Balance All the debit side items related to expenses and credit side items related to income listed in the trial balance shall be posted on the debit side and credit side of the income statement respectively.

Post opening stock on the debit side of the income statement.