and capital. These are prepared on the basis of trial balance and additional information, if any. Example Observe the following trial balance of Ankit and signify correctly the various elements of accounts and you will notice that the debit balances represent either assets or expenses/ losses and the credit balance represent either equity/liabilities or revenue/gains. [This trial balance of Ankit will be used throughout the chapter to understand the process of preparation of financial statements] Trial Balance of Ankit as on March , L.F.
Debit Credit Cash Bank Creditors , % Long term loan (raised on April , ) Furniture Commission received Rent of building , Debtors , , , , , , The balance sheet and profit and loss account are now called position statement and statement of profit and loss in the company’s financial statements. Since Chapters and deal with the preparation of financial statements of sole proprietorship firm, the terms balance sheet and profit and loss account are retained. Analysis of Trial Balance of Ankit as on March , Elements L.F. Debit Credit Cash Asset Equity Bank Asset Revenue Expense Creditors Liability Expense , % Long-term loan Liability (raised on April , ) Furniture Asset Commission received Revenue Rent of building Expense , Debtors Asset , Expense Expense , , , , ,