Step By Step Guide in Preparing Extended Trial Balance

Step1

If the initial trial balance is given, add more columns ADJUSTMENTS, INCOME STATEMENT and STATEMENT OF FINANCIAL POSITION as show below 

Step2

For any additional information that requires additional debit, post it to the debit side of the adjustment column (for an existing account-head) and create a new account-head for the credit (if the credit leg does not have an existing account-head)

Example

The following trial balance is in respect of Pipe-T Ventures 

Additional information

It was noted that rent has a prepayment amount of N5,000.

Required

Prepare the extended trial balance

The extended trial balance is now presented as follows 

Step3

For additional information that requires a credit entry, post to the credit of the adjustment column and enter the debit leg in the debit column (for existing account-head). If the additional information does not have an existing account-head, create it and post to it.

Example

The following trial balance is in respect of Fun-P Ventures 

After drawing the trial balance, the following were noted

i.              Rent of N5000 was prepaid

ii.             Salary amount of N2400 was outstanding as at 31^st Dec, 20v5

Prepare the extended trial balance 

Step4

For closing stock, create two account-heads – closing stock and cost of sale

Debit closing stock and credit cost of sale both in the adjustment column

Example

The following trial balance is in respect of See-T Ventures 

After preparing the above trial balance, it was disclosed that stock as at 31^st Dec, 20v1 stood at N8700

The extended trial balance will appear thus 

Step5

For the initial trial balance, post all balances into their respective columns ie post income statement-related items into the income statement columns. Credit items should be posted to credit side and debit items should go to debit side.

Step6

As in (5) above, post all items of the adjustment columns into their respective columns for income statement and statement of financial position

Step7

Where a debit item in the trial balance column has a debit entry in the adjustment column, take the difference and post to the higher side of the appropriate account

Example

If “rent” (debit item) in the trial balance has a credit entry in the adjustment column, the difference in amount should go to the debit side of the income statement (P & L Account). Same approach applies to all other items in the trial balance

Step8

Where all the items have been posted, the lesser side of the income statement is given the difference as a balance figure. If this balancing figure is on the debit side on the income statement (ie credit side greater than debit side), the balancing figure is profit. If otherwise, it is loss.

Step9

The balancing figure in (8) automatically becomes the balancing figure in the statement of financial position. If it is a loss, it goes to the debit (asset) side of the statement of financial position. If it is profit, it goes to the credit (equity) side of the statement of financial position.

Note

A statement of financial position is not an account in itself; hence, debit items are arranged on the asset side and credit items are stated on the equity side.