How to Convert Your Trial Balance into an IR10 Form for IRD

You have a trial balance, and you know it needs to be converted into an IR10 form for Inland Revenue (IRD). This process can seem like translating a foreign language, but it’s not as tricky as it sounds. This guide will walk you through how to turn that list of numbers into a polished IR10 form.

What is a Trial Balance?

A trial balance is a list of all the accounts in your general ledger at the end of an accounting period. It includes everything from sales and rent to bank balances and supplier payments. The fundamental rule is that the total of all debit balances must equal the total of all credit balances. If they don't match, you need to find and fix the errors before proceeding. This raw list is the foundation for your financial statements.

What is an IR10 Form?

The IR10 is the standard Financial Statements Summary form required by the IRD. It is not a set of detailed financial reports but a high-level summary that provides a consistent overview of your business's performance and financial position for the year. This format makes it easier for the IRD to get a quick snapshot of your financial year.

You typically file the IR10 alongside your main income tax return, such as an IR3 for a sole trader or an IR4 for a company. The document is divided into two main parts: a summary of your Income and Expenses (Income Statement) and a summary of your Assets and Liabilities (Balance Sheet).

The Conversion Process: From Trial Balance to IR10

The conversion process involves mapping your detailed trial balance accounts into the IRD's broader, standardized categories. Here are the practical steps:

1. Get Your Final Trial Balance

   Ensure you are working with the final, adjusted version of your trial balance. This means all year-end adjustments—such as depreciation, accrued expenses, and other corrections—have already been made by your bookkeeper or accountant. Starting with a draft will only mean redoing your work later.

2. Separate Your Accounts into Two Groups

   The first major step is to sort all your accounts into two main piles: those that belong on the Income Statement and those that belong on the Balance Sheet.

   • Income and Expense Accounts: These track money coming in and going out during the year. Examples include sales, rent, wages, advertising, and interest. These accounts will be used for the Profit and Loss section of the IR10.
   • Asset, Liability, and Equity Accounts: These show what your business owns, what it owes, and the owner's investment. Examples include bank balances, vehicles, loans, money owed to suppliers (accounts payable), and owner's equity. These will be used to build the Balance Sheet section of the IR10.

3. Match Your Accounts to IR10 Categories

   Now, group your individual accounts into the specific lines on the IR10 form.

   For the Profit and Loss section:

   • Add together all your sales accounts (e.g., "Sales of Products," "Sales of Services") and enter the total on the "Gross income from sales or services" line.
   • Use accounts like "Opening Stock" and "Purchases" to calculate the "Cost of Goods Sold."
   • Group related expenses. For example, combine "Rent," "Rates," and "Insurance" into the "Rent, Rates, and Insurance" category. Combine "Wages" and "ACC Levies" into "Salaries and Wages Paid to Employees."
   • Use the "Other Expenses" lines for items that don't fit neatly into a specific category, trying to group similar items together.

   For the Balance Sheet section:

   • Sum all your bank account balances and enter the total in "Cash and Bank Accounts."
   • Total your "Accounts Receivable" and place it in the "Debtors or Accounts Receivable" line.
   • In the Fixed Assets section, list items like "Vehicles" and "Office Equipment" at their original cost. Enter the "Accumulated Depreciation" from your trial balance as a negative value to calculate the book value of these assets.
   • Add your "Accounts Payable" total to its corresponding line. Do the same for liabilities like "GST Payable" or "PAYE Payable."

4. Make Tax Adjustments

   This is an area where many get tripped up. The accounting profit you calculate is not always the same as your taxable income. The IR10 has a reconciliation section to account for these differences.

   • Depreciation: The depreciation expense claimed in your financial statements might differ from the amount you can claim for tax purposes. The IR10 has fields to adjust for this difference.
   • Non-Deductible Expenses: Review your expense accounts. For an expense like "Entertainment," typically only 50% is deductible for tax purposes. You must add back the non-deductible portion to your net profit to calculate your taxable income. The IR10 has a specific line for this adjustment. Other items, like the personal use of a business vehicle, also require adjustments here.

Common Mistakes to Avoid

• Drawings vs. Salary: If you are a sole trader, money you take from the business for personal use is called "drawings." Drawings are not a business expense and should not be included in the wages line on the IR10. They are a reduction of your equity in the business.
• GST Figures: The figures you enter on the IR10 form should be GST exclusive. Most accounting software prepares a GST-exclusive trial balance, but it is crucial to double-check this.
• The Balancing Act: Your final Balance Sheet must balance: Total Assets must equal Total Liabilities + Total Equity. The "Current Year Earnings" figure in the equity section should match the net profit from your Profit and Loss section, adjusted for any drawings or capital introduced during the year.

While it may seem like a chore, converting your trial balance into an IR10 helps you understand the financial story of your business for the year. It forces you to see where the money came from, where it went, and what you have left. If this process seems overwhelming, consider seeking help from an accountant or bookkeeper.