Trial balance: A list of all ledger account closing balances arranged into debit and credit columns at a specific date. Two purposes: (1) check arithmetic accuracy of double-entry recording; (2) facilitate preparation of financial statements. Limitation: a balanced trial balance does not guarantee all entries are correct — it cannot detect omissions, errors of original entry, or amounts posted to the wrong account.
Statement of Financial Performance: Shows income earned and expenses incurred over a period of time. Trading businesses: Sales revenue − Sales returns = Net sales revenue − Cost of sales = Gross profit + Other income − Expenses = Profit/(Loss). Service businesses: Profit/(Loss) = Service fee revenue + Other income − Expenses. No gross profit line for service businesses.
Statement of Financial Position: Shows assets, liabilities, and equity at a specific date. Assets are classified as non-current (benefit > 1 year) or current (benefit ≤ 1 year), listed non-current assets first. Liabilities are classified as non-current (due > 1 year) or current (due ≤ 1 year), listed non-current liabilities first. For sole proprietorships: Ending Capital = Beginning Capital + Additional Capital + Profit (or − Loss) − Drawings. Total assets must always equal Total equity and liabilities.