FA-2- Extended trial Balance

What is ETB?                                                  Click here for download

ETB stands for Extended Trial Balance. So The purpose of preparing extended trial balane is to make adjustments that had not been made when a normal trial balance was extracted. In other word to make adjustments that were omitted for the purpose of preparing an accurate final accounts and the balance sheet

Format of ETB



Some important tips:

Take the profit or loss for the year to the statement of financial position columns.

          Profit = Debit in income statement = Credit in Balance Sheet or Financial Statement

          Loss = Credit in income statement = Debit in Balance Sheet or Financial Statement

          Accruals = Liability = Credit

          

          Prepayment = Assets = Debit

         Closing Inventory will be an asset (DEBIT) in the Statement of Financial Position and will be      credited to cost of sales in the income statement.

Accumulated Depreciation 

Important to Know : 

              The Depreciation Charge is a Debit in the Income Statement and Accumulated  Depreciation is a Credit in the Statement of Financial Position.

If you purchased a new car for $50,000 and resold it three years later for $30,000, you would have experienced a $20,000 loss on the value of your asset. A business would write a portion of this loss of value off each year, even though it required no cash outlay, reducing reported profits.

The accounting entry has to be put somewhere on the financial statements. It is kept in a special type of account (known as a contra account) on the balance sheet known as accumulated depreciation. Frankly, you don't need to worry about that. You just need to know that your balance sheet is going to look like this:

Car Asset - $50,000 value

Accumulated Depreciation - Car - ($20,000 value)

Net Asset Value - Car: $30,000

As you can see, the purpose of the accumulated depreciation account is to reduce the carrying value of an assets to reflect the loss of value due to wear, tear, and usage. Companies purchase assets such as computers, copy machines, buildings, and furniture, all of which lose value each day. This depreciation loss must be accounted for in the company's financial statements in order to give shareholders the most accurate portrayal of the economic realty of the business.

If you have trouble understanding the concept of accumulated depreciation, think about the problem this way: If a company bought $100,000 worth of computers in 1989 and never recorded any depreciation expense, the balance sheet would still show an asset worth $100,000. Do you really think that computers that old, which wouldn't even run today's software, are worth anywhere near that amount? At most, you'd be lucky to get a few hundred dollars for scrap parts.

Accumulated Depreciation - Net

When you look at a balance sheet, you aren't going to see the individual assets and many businesses don't even bother to show you the accumulated depreciation account at all. Instead, they show a single line called "Property, Plant, and Equipment - net" it is referring to the fact that the company has deducted accumulated depreciation from the purchase price of the company's assets. 

(ref. about.com