In South Africa, your accounting practices must comply with International Financial Reporting Standards (IFRS), or IFRS for SME's which is referred to as the 'financial reporting framework'.
And, in order to do this, you must draw up a trial balance at least once every financial year.
A trial balance is an accounting report that comprises a summary of all entries in your accounting books. It is also considered to be the main tool to use when preparing financial statements as required by your financial reporting framework.
Having said that, here are three steps to follow in putting together your trial balance:
Begin with a pre-adjusted trial balance at the end of period.
How sure are you that your trial balance is error free?
If it isn't, your financial statements will also be incorrect. This means
· Your accounting practices won't meet IFRS;
· You could declare incorrect taxable income to SARS, which means fines and penalties;
· Your company won't be compliant with the Companies Act of 2008 and the Income Tax Act; and
· You'll give an incorrect picture of your company's finances – and look guilty of fraud!
But don't despair. We'll help you tackle the problems in drawing up an income statement and balance sheet with this one tool.
Confirm the entries with the adjusted trial balance.
A review of your trial balance will, more often than not, lead to adjustments so as to:
· Correct any errors;
· Accrue income and expenses;
· Recognise depreciations; and
· Effect changes in treatment of certain items.
Take out the post-closing trial balance.
This lists the balances you'll place on your balance sheet.
Remember that a trial balance is important because it:
· Verifies your calculations, adjustments and entries;
· Provides a picture of your finances;
· Links balance sheet accounts to the income statement accounts; and
· Analyses your business as well as your financial activity.
*So, those were three steps to follow when compiling a trial balance.
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