Summary of Week 4
If (a) all the double entries for every transaction and financial event are correctly recorded in the relevant T-accounts and (b) all the relevant T-accounts are correctly balanced off, then a correct trial balance can be prepared. The trial balance shows the double-entry rule that ‘for every debit there is a credit’.
The balances from the trial balance can be used to prepare the balance sheet. Balance sheets are commonly prepared in a vertical format of the accounting equation. The accounting equation can be expanded to Assets = Liabilities + Capital + (Revenue – Expenses) to reflect the fact that an increase in profit means an increase in capital.