Retained earnings (which are often part of the statement of equity) show how the organization`s equity (or value) has evolved over a period of time. Retained earnings are compiled secondarily to determine the final balance of retained earnings for the period. Retained earnings are prepared before the balance sheet because the final amount of retained earnings is a mandatory item on the balance sheet. Below are the retained earnings for Printing Plus. Service revenues had a balance of $9,500 in the “Test Balance” column and a balance of $600 in the “Adjustments” column. To receive the balance of $10,100 in the “Adjusted Test Balance” column, both credits must be added in the “Test Balance” and “Adjustment” columns (9,500 + 600). You perform the same process for all accounts. Once all accounts have balances in the adjusted test balance columns, add the fees and credits to make sure they are the same. In the case of Printing Plus, the balances are $35,715. If you check the adjusted test scale for Printing Plus, you will see that the same scale exists.
Once the test balance information is on the worksheet, the next step is to populate the customization information from the published custom log entries. You won`t notice any similarity between the 10-column spreadsheet and the balance sheet, because the spreadsheet in the 10th column categorizes all accounts based on the type of balance they have, debit, or balance. This results in a final balance of $30,140. Treat the Income Statement and Balance Sheet columns as a double-entry accounting system where, if you have charges on the income statement side, you must have a credit note equal to the same amount on the credit side. In this case, we added a fee of $4,665 to the Income Statement column. This means that we have to add a credit of $4,665 to the balance sheet column. Once we add the $4,665 to the credit side of the balance sheet column, the two columns are equal to $30,140. If you look at the balance sheet columns, we have the current new retained earnings, but they are spread over two digits. They have a dividend balance of $100 and a net income of $4,665. When you combine these two individual numbers ($4,665 to $100), you`ll have your updated retained earnings balance of $4,565, as seen on retained earnings.
If we look at the columns of the income statement, we see that all income and expense accounts are listed in the debit or entry column. This is a reminder that the income statement itself does not organize information into debits and credits, but we use this presentation on a 10-column spreadsheet. The balance sheet classifies the accounts by type of accounts, assets and counterclaims, liabilities and equity. That`s because they only started doing business this month and don`t have an incipient profit balance. Here`s an image of a 10-column spreadsheet for Printing Plus. The balance sheet is the third statement that is prepared after retained earnings and lists what the organization owns (assets), what it owes (liabilities) and what shareholders control at a given date (equity). Remember that the balance sheet is the accounting equation where assets are equal to liabilities plus equity. Below you will find the results of Printing Plus. To get the numbers in these columns, take the number in the Test Balance column and add or subtract any number in the fit column. For example, cash has an unadjusted balance of $24,800. There is no adjustment in the adjustment columns, so the cash balance is transferred from the Unadjusted Balance column to the adjusted test balance columns at $24,800. Interest income was not present in the test balance sheet information, so the balance in the adjustment column is transferred from $140 to the adjusted column of the trial balance.
As we complete the accounting cycle, we continue our discussion of the accounting cycle by completing the final steps of journaling and accounting for closing entries and preparing a post-completion test balance. You will find that by adding the columns of the debit and credit income statements, the balances are not identical. The debit balance is $5,575 and the balance is $10,240. .