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trial balance

Guidelines to Prepare a Complete Trial Balance

Objective:

In this blog, we will discuss the guidelines for creating a mandatory chart of accounts that results in a complete trial balance, enabling accountants to prepare MIS Reports and/or Financial Statements.

 

 Chart of Accounts

A well-organized Chart of Accounts is crucial for placing the right ledgers in the correct sections of the trial balance. This ensures accurate financial reporting and ease of analysis.

 

 Double Entry System

The entire accounting system is based on the double entry principle. Therefore, every debit entry must have a corresponding credit entry and vice versa, ensuring balanced accounts.

 

 Opening Balances

Opening Balances (OPBs) are foundational for the trial balance. Without correct OPBs, the closing balances and subsequent balance sheets will be inaccurate.

 

 Ledger Scrutiny

After recording all transactions for the period, it is essential to scrutinise every ledger to ensure completeness and accuracy:

  1. Transaction Posting: Verify that all transactions for the period are recorded.
  2. Provisions and Accruals: Ensure proper entry of provisions and accruals for expenses.
  3. Revenue Recognition: Confirm that all revenue has been recognised correctly.
  4. Expense and Revenue Deferments: Check for any deferments in expenses and revenues.
  5. Prepaid Expenses: Verify proper handling and amortization of prepaid expenses.
  6. Third-Party Balances: Reconcile bank balances, creditors, and debtors to ensure agreement.
  7. Interbranch Reconciliation: Complete interbranch reconciliations.
  8. Statutory Balances: Match VAT inputs with the authority portal.
  9. Current Maturities of Long-term Debts: Ensure these are accurately recorded.
  10. Interest Expense Booking: Confirm the correct booking of interest expenses for fixed schedule loans.
  11. Property, Plant, and Equipment (PPE): Properly recognize PPEs and expense any low-value items. Ensure depreciation is correctly calculated and posted.
  12. Depreciation: Calculate and post depreciation accurately.
  13. Gratuity Provisions: Calculate and provide for gratuity along with actuarial valuation if needed.
  14. Monthly Comparison: Review monthly trial balance comparisons to identify errors or omissions.
  15. Expense Grouping: Ensure correct grouping of direct and indirect expenses.
  16. Closing Stock Statements: Accurately value and exclude closing stock from the trial balance to avoid double counting.
  17. Stock Valuation: Value closing stock as per policy and IAS-2.
  18. Interest from Fixed Deposits: Recognize interest from fixed deposits accurately.
  19. Deposits to Authorities: Verify that deposits given to various authorities are active.
  20. Share Capital: Ensure share capital agrees with statutory documents.
  21. Owner’s Drawings: Treat the owner’s drawings correctly, either as expenses or the shareholder’s current account.
  22. Group Entity Expenses: Confirm that the expenses of one group entity are not recorded as expenses of another group entity.

 

 Additional Points for Consideration:

  1. Accrual Basis of Accounting: Ensure all income and expenses are recorded in the period they occur, not when the cash is received or paid.
  2. Bad Debts Provision: Create provisions for doubtful debts to reflect a more accurate financial position.
  3. Loan Covenants: Review compliance with loan covenants to avoid breaches that could affect financial stability.
  4. Foreign Currency Transactions: Ensure proper accounting for foreign currency transactions and translation adjustments as per IFRS.
  5. Contingent Liabilities: Disclose any contingent liabilities to provide a complete picture of the financial position.
  6. Deferred Tax: Calculate and recognise deferred tax liabilities or assets in accordance with IAS 12.
  7. Amortization of Intangibles: Ensure proper amortisation of intangible assets over their useful life.
  8. Capital Work in Progress (CWIP): Properly account for CWIP and transfer to PPE upon completion.
  9. Bank Reconciliation: Regularly perform bank reconciliations to ensure cash balances are accurate.
  10. Automation and Software: Utilize accounting software to automate processes and reduce manual errors.

 

 Conclusion

By following these comprehensive guidelines, you can prepare a complete and accurate trial balance. This will not only ensure compliance with accounting standards but also facilitate the preparation of reliable MIS Reports and Financial Statements. These additional points further enhance the accuracy and integrity of your financial reporting, providing deeper insights into your business’s financial health.

 

Disclaimer: The blog provided above is intended for reference purposes only. It does not imply legality or official endorsement. Spectrum assumes no responsibility for any legal implications arising from the use of the information provided.

Why Spectrum Auditing?

Why Spectrum Auditing?

Spectrum Auditing is a duly registered auditor authorized by the Ministry of Economy in the UAE. Furthermore, Spectrum holds accredited auditor status within multiple free zones and enjoys recognition as an approved auditor by prominent UAE banks. This solidifies Spectrum Auditing’s reputable standing in the industry.

 

Spectrum Auditing guides you with the laws and regulations of UAE, covering most compliances applicable as well as enable you deal with any queries pertaining to Risk Advisory, Economic Substance Regulations (ESR),  Corporate Tax (CT), Transfer Pricing (TP), Ultimate Beneficiary Owner (UBO), Anti Money Laundering (AML), etc., after reviewing your business. We specialize in conducting audits adhering to International Standards on Auditing (ISA), International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS).

 

Call us today for any kind of assistance at +971 4 2699329  or email [email protected] to get all your queries addressed. Spectrum is your partner in your success.



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