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Three steps to compile your financial statements and pass your audit.

by , 04 November 2015
According to the new Companies Act (2008), you must compile financial statements at the end of your financial year.

Auditors or reviewers will look at the financial statements when they do your financial audit or review. So you need to make sure these statements meet the standards set out in your financial reporting framework, the Companies Act and the Income Tax Act.

So read on for three steps to compile your financial statements and pass your audit.

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To prepare your financial statements you must first create a trial balance.

Follow this step-by-step process to compile your trial balance:

• Step #1: Start with a Pre-adjusted trial balance at the end of a period;
• Step #2: Confirm the entries with the Adjusted trial balance; and
• Step #3: Extract the Post-closing trial balance.

Step #1: The pre-adjusted trial balance

When compiling your trial balance, start with the trial balance before adjustments.

The items in the general ledger are:

• Cash at bank;
• Creditors (accounts payable);
• Debtors (accounts receivable); and
• Property, plant and equipment.

Step #2: The adjusted trial balance

A review of your trial balance will always result in adjustments that you'll need to do to:

• Correct errors;
• Accrue income and expenses;
• Recognise depreciation; and
• Effect changes in treatment of certain items,

Use this worksheet to adjust the trial balance. Add the year-end adjustments. This trial balance will confirm the entries in the accounts and their adjustments are correct.

This trial balance typically has three columns. It shows:

• The pre-adjusted balances;
• The adjustments; and
• The adjusted figures.

Read on for the last step in compiling your trial balance.

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Step #3: The post-closing trial balance

Now, you can extract a post-closing trial balance. This lists the balances you'll place on your balance sheet.

So make sure you're ready and compile your financial statements correctly, so you can pass your audit by meeting the standards set out in your financial reporting framework.

P.S. Next week I'll show you how to prepare your income statement. Turn to chapter F08 Financial statements: How to compile financial statements in your Practical Accountancy Loose Leaf Service. Don't have one? Well click here to get your copy now.
 


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