Stages in the routine
The procedure for compiling the final accounts at the end of an accounting period may now be summarised as follows:
1. Test the arithmetical accuracy of the book-keeping by preparing a trial balance.
2. Prepare a schedule of adjustments to the accounts, journalise these adjustments and post from the journal to the accounts.
3. Transfer through the Journal the balances now shown on the revenue accounts to the appropriate account, e.g. one or more of the following: manufacturing, trading and profit and loss account, thus arriving at the profit available for appropriation, which is transferred to an Appropriation Account.
4. Transfer through the Journal the appropriations decided by the management, from the Appropriation Account to the relevant dividend, tax and revenue accounts.
5. If the adjustments are very numerous, as they will be in a large and complex organisation, it is desirable to prepare a second trial balance in order to ensure that the final Journal entries have been posted correctly.
The Appropriation Account now represents a capital account, and no balances will now appear on the revenue accounts. In other words, the balances now remaining will all be shown on the Balance Sheet or statement of the financial position, and carried forward as opening balances for the new period. The final stages is, therefore;
6. Drawn up a Balance Sheet or statement of the financial position from the remaining accounts.
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