The trial balance
A trial balance lists every ledger account's balance, split into debit and credit columns, to check that total debits equal total credits -- a basic (though not foolproof) check that the double-entry bookkeeping has been applied consistently. If the two totals don't match, an error exists somewhere and must be found before final accounts can be prepared.
Example 1: A trial balance shows total debits of ₦850,000 and total credits of ₦830,000. What does this tell you?
The totals don't match, meaning there's an error somewhere in the ledger -- a transaction recorded incorrectly, an account omitted, or a one-sided entry. The ₦20,000 difference must be investigated and corrected before reliable final accounts can be prepared.
The trading and profit and loss account
The trading account calculates gross profit: . The profit and loss account then deducts all other business expenses (rent, salaries, utilities, depreciation, etc.) from gross profit to find net profit.
Example 2: A business has sales revenue of ₦500,000, cost of goods sold of ₦300,000, and other expenses of ₦120,000. Find the gross profit and net profit.
Gross profit = . Net profit = .
The balance sheet
The balance sheet is a snapshot of the business's financial position at a specific date, listing assets (what it owns), liabilities (what it owes), and capital (the owner's stake) -- always balancing according to the accounting equation, .