Chapter X

Chapter 18
Chapter
The Extended Trial Balance and FinalTitle
Financial Statements (advanced)

An
Introduction to
Financial
Accounting
9th edition

Andrew Thomas & Anne Marie

Ward

© McGraw-Hill Education 2019

 Objectives
By the end of the lecture (and with private study) students
should be able to:
• Prepare an extended trial balance taking into account accounting
adjustments.
• Prepare an statement of profit or loss and a statement of financial
position from an extended trial balance.

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 Year end adjustments
• Inventories of goods for resale

• Provisions for depreciation

• Allowance for irrecoverable debts

• Write off - irrecoverable debts

• Accruals and prepayments

• Inventories of tools, stationery and fuel

• Drawings and capital introduced

• Goods on sale or return

© McGraw-Hill Education 2019
 The extended trial balance
The extended trial balance is used to make the necessary year-end
adjustments and prepare final financial statements. It is essentially
the same as a normal trial balance but with six additional money
columns, giving eight in all, comprised of the following:

1. The trial balance debit side

2. The trial balance credit side
3. Adjustments to the debit side (of ledger accounts)
4. Adjustments to the credit side (of ledger accounts)
5. The statement of profit or loss account debit side
6. The statement of profit or loss account credit side
7. The statement of financial position debit side
8. The statement of financial position credit side

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 The extended trial balance:
the adjustment columns
The adjustment columns are used like the journal, in
that items entered in these columns are intended to
represent entries that will be made in the ledger.

For example, the transfer of drawings to the capital

account consists of an entry in the credit adjustment
column on the line containing the balance in the
drawings account, with a corresponding entry in the
debit adjustment column on the line containing the
balance in the capital account.

© McGraw-Hill Education 2019

 The extended trial balance:
the adjustment columns
Furthermore, adjustments may take the form of an
entry in one of the adjustment columns and one of
the statement of P/L account columns.

The most common examples of this are allowances

for irrecoverable debts and depreciation. In the
case of the latter, the entry consists of a debit in
the statement of P/L account column and a credit in
the adjustment column, both on the line containing
the balance in the provision for depreciation
account.

© McGraw-Hill Education 2019

 The extended trial balance:
the adjustment columns
Another form of entry in the adjustment
columns relates to accruals and prepayments.

These consist of an entry in both the debit and

credit adjustment columns on the line
containing the balance in the relevant expense
account .

© McGraw-Hill Education 2019

The extended trial balance: the statement of
P/L and SOFP columns
After all the necessary adjustments have been
made in the adjustment and statement of P/L
account columns, the amounts that will be
entered in the statement of P/L account and
SOFP columns can be ascertained.

These are found by cross casting the amounts

relating to each ledger account shown in the
original trial balance.

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The extended trial balance: the statement of
P/L and SOFP columns
When all the amounts have been entered in the
statement of P/L account and SOFP columns, the profit
(or loss) can be computed in the normal way as the
difference between the two statement of P/L account
columns.

The profit is entered in the statement of P/L account

debit column and the credit adjustment column. The
latter is then extended into the SOFP credit column and
eventually added to the capital account balance.

© McGraw-Hill Education 2019

The extended trial balance: the statement of
P/L and SOFP columns
When all the items in the trial balance have
been extended across into the statement of P/L
account and SOFP columns and the profit
ascertained, the amounts in these columns are
entered in the final version of the statement of
P/L account and SOFP.

© McGraw-Hill Education 2019

 Example
See Worked Example 18.1 for practical
experience of how to post these
transactions and to see the format of an
extended trial balance.

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 Summary – some key points
• Some transactions are not posted until the end of
the year after the ledger accounts are totalled and a
draft trial balance is extracted.

• Examples include, year end inventory, accruals,

prepayments, income received in advance, income
deferred, depreciation, irrecoverable receivables and
the allowance for irrecoverable receivables.

• The extended trial balance can be used to make

these types of accounting adjustments.

© McGraw-Hill Education 2019

 Student - study action
• Read chapter 18.

• Then - try to explain the key terms and concepts (check

your answer with the chapter and the online glossary).

• Try the review questions (check your answers with the

chapter)

• Try the exercise questions with an asterisk (solutions

are available in the appendix)

• Try the exercise questions required by your tutor

(solutions to be provided by the tutor at their
discretion)

• Try the learning activities on the student online learning

centre (www.mcgraw-hill.co.uk/textbooks/thomas)
© McGraw-Hill Education 2019