Download File

UNIT-4
Acct - 103
UNIT-4 (Acct – 103)
Syllabus
Trial Balance: Meaning, Importance
and Preparation of Trial Balance.
Dr Masharique Ahmad
Asst. Prof, Deptt. of Accounting,
CBAK
2
MEANING & PURPOSE TRIAL
BALANCE ???
The trial balance is the statement of Ledger account balance
within a ledger of a business at a particular instance.
>> Trial ??
Meaning = The act of testing something / Trying something to
find about it
>> Balance??
Meaning = To lag or linger behind
Importance;
The Trial Balance is prepare to check the mathematical /
Arithmetical accuracy of accounts. This is the only purpose of
Trial Balance.
THE TRIAL BALANCE
• The act of totaling debit balances and credit balances to
confirm that total debits equal total credits.
• The trial balance is a list of accounts and their balances
at a given time.
• The primary purpose of a trial balance is to prove
debits = credits after posting.
• If debits and credits do not agree, the trial balance can
be used to uncover errors in journalizing and posting.
4
THE TRIAL BALANCE
The Steps in preparing the Trial Balance are:
1. List the account titles and balances
2. Total the debit and credit columns
3. Prove the equality of the two columns
Key to preparing a trial balance is making sure that
all the account balances are listed under the
correct column. The appropriate columns are as
follows:
Assets
= Debit balance
Liabilities = Credit balance
Expenses = Debit Balance
Equity = Credit balance
Revenue = Credit balance
5
A TRIAL BALANCE
PIONEER ADVERTISING AGENCY
Trial Balance
October 31, 2005
Cash
Advertising Supplies
Prepaid Insurance
Office Equipment
Notes Payable
Accounts Payable
Unearned Fees
C. R. Byrd, Capital
C. R. Byrd, Drawing
Fees Earned
Salaries Expense
Rent Expense
The total debits
must equal the
total credits.
Debit
Sr 15,200
2,500
600
5,000
Credit
Sr5,000
2,500
1,200
10,000
500
10,000
4,000
900
Sr 28,700 Sr28,700
6
LIMITATIONS OF A TRIAL
BALANCE
• A trial balance does not prove all transactions have
been recorded or the ledger is correct.
• Numerous errors may exist even though the trial
balance columns agree. For example, the trial balance
may balance even when:
–
–
–
–
–
a transaction is not journalized
a correct journal entry is not posted
a journal entry is posted twice
incorrect accounts used in journalizing or posting
offsetting errors are made in recording
7
Practical Problems
Problem:
Saif opened the Campus Laundromat on September 1, 2008. During
the first month of operations the following occurred.
Sept. 1 Invested SR.20,000 cash in the business.
2 Paid SR.1,000 cash for store rent for September.
3 Purchased washers and dryers for SR.25,000, paying SR.10,000 in cash and signing
SR.15,000, 6-month, 12% note payable.
4 Paid in cash of SR.1,200 for a one-year accident insurance policy in advance.
10 Received a bill from the Daily News for advertising the opening of the
Laundromat SR.200.
20 Withdrew SR.700 cash for personal use.
30 Determined that cash receipts for laundry services for the month were SR.6,200.
Instructions
(a) Journalize the September transactions. (Use J1 for the journal page number.)
(b) Open ledger accounts and post the September transactions.
(c) Prepare a trial balance at September 30, 2008.
General Journal
Date
2008
Sept. 1
Account Titles and Explanation
Cash
Saif, Capital
Ref. Debit
101
301
Credit
20,000
20,000
(Owner’s investment of cash in business)
2
Rent Expense
Cash
(Paid September rent)
3
4
10
20
Laundry Equipment (washers and dryers )
Cash
Notes Payable
(Purchased laundry equipment for cash and 6-month, 12% note
payable)
Prepaid Insurance
Cash
154
101
200
1,000
1,000
25,000
10,000
15,000
130
101
1,200
610
201
200
1,200
(Paid one-year insurance policy)
Advertising Expense
Accounts Payable
(Received bill from Daily News for advertising)
30
729
101
Bob Sample, Drawing
Cash
306
101
200
700
700
(Withdrew cash for personal use)
Cash
Service Revenue
(Received cash for services provided)
101
400
6,200
6,200
cash
Date
Explanation
Ref
Prepaid Insurance
Debit
2008
Sept.
1
2
3
4
20
30
Credit
Balance
Date
Explanation
Ref
2008
Sept. 10
20,000
6,200
20,000
1,000 19,000
10,000 9,000
1,200 7,800
700 7,100
13,300
J1
Explanation
2008
Sept. 4
Ref
Debit
J1
Date
Explanation
2008
Sept. 3
Explanation
Ref
J1 25,000
Balance
200
Debit
J1
Credit
20,000
Balance
20,000
Saif Drawing
Credit
1,200
Debit
200
Ref
2008
Sept. 1
Balance
1,200
Date
Explanation
2008
Sept. 30
Credit
Ref
Debit
Credit
J1 700
Laundry Equipment
Date
Credit
Saif Capital
Prepaid Insurance
Date
Debit
Balance
700
Service Revenue
Balance
25,000
Date
2008
Sept. 30
Explanation
Ref
J1
Debit
Credit
6,200
Balanc
e
6,200
Advertising Expenses
Notes Payable
Date
Explanation
2008
Sept. 3
Ref
Debit
J1
Credit
15,000
Balance
15,000
Date
2008
Sept. 10
Explanation
Ref
Debit
Credit
J1 200
Balanc
e
200
CAMPUS LAUNDROMAT
Trial Balance
September 30, 2008
Debit
Rent Expenses
Date
2008
Sept. 2
Explanation
Ref
J1
Debit
1,000
Credit
Balance
1,000
Cash
Prepaid Insurance
Laundry Equipment
Notes Payable
Account Payable
Saif Capital
Saif Drawing
Service Revenue
Advertising Expenses
Rent Expenses
Credit
SR.13,300
1,200
25,000
SR.15,000
200
20,000
700
6,200
200
1,000
SR.41,400 SR.41,400
Problem:
From the following ledger balances of Pioneer Advertising Agency Prepare a
Trial Balance as on October 31 2009
Accounts Payable
Cash
Date
Explanation
Re f.
Date
Debit
Credit
Balance
2008
Oct. 1
J1
10,000
10,000
2
J1
1,200
11,200
3
J1
900
10,300
4
J1
600
9,700
20
J1
500
9,200
26
J1
4,000
5,200
31
J1
10,000
15,200
Explanation
2008
Oct. 5
Explanation
2008
Oct. 31
Ref.
Debit
J1
Date
Explanation
2008
Oct. 26
Ref.
Credit
Balance
Date
Debit
J1
Explanation
2008
Oct. 1
Credit
1,200
Balance
1,200
Ref.
Debit
J1
Credit
Balance
10,000 10,000
Drawing
Credit
Explanation
Ref.
Debit
Credit
Balance
Balance
2008
J1 4,000
2,500
Capital
10,000 10,000
Debit
Balance
2,500
Ref.
2008
Oct. 2
Date
Explanation
Credit
Unearned Revenue
Salaries Expenses
Date
Debit
J1
Service Revenue
Date
Ref.
4,000
Oct. 20
J1 500
500
Rent Expense
Date
Explanation
2008
Oct. 3
Ref.
Debit
Advertising Supplies
Credit
J1 900
Balance
Date
Explanation
2008
Oct. 5
900
2008
Oct. 4
Explanation
Ref.
Debit
J1 600
Debit
Credit
J1 2,500
Prepaid Insurance
Date
Ref.
Balance
2,500
Office Equipment
Credit
Balance
600
Date
Explanation
2008
Oct. 1
Ref.
J1
Debit
Credit
5,000
Balance
5,000
Notes Payable
Date
2008
Oct. 1
Explanation
Ref.
J1
Debit
Credit
5,000
Balance
5,000
Solution:
Pioneer Advertising Agency
Trial Balance
October 31,2009
Debit
Cash
Advertising Supplies
Credit
SR.15,200
2,500
Prepaid Insurance
600
Office Equipment
5,000
Notes Payable
SR 5,000
Accounts Payable
2,500
Unearned Revenue
1,200
C. R. Byrd, Capital
10,000
C. R. Byrd, Drawing
500
Service Revenue
Salaries Expense
Rent Expense
10,000
4,000
900
SR28,700
SR 28,700
At December 31, 2008, the unadjusted trial balance of Kari Thresher Company shows the
following balances for selected accounts:
Supplies
SR. 8,500
Prepaid Insurance 12,000
Equipment
40,000
Accumulated Depreciation 16,000
Unearned Fees
15,000
Notes Payable
50,000
Fees Earned
40,000
Instructions
Prepare the adjusting entries for the year ending December 31, 2008.
General Journal
Date
2008
Dec. 31
31
31
31
31
31
31
Account Title
Supplies Expense
Supplies
(SR.8,500 - SR.3,000)
Insurance Expense
Prepaid Insurance
(SR.12,000 x 6/12)
Depreciation Expense
Accumulated Depreciation
Unearned Fees
Fees Earned
Interest Expense
Interest Payable
(SR.50,000 x 10% x 6/12)
Accounts Receivable
Fees Earned
Salaries Expense
Salaries Payable
Debit
Credit
5,500
5,500
6,000
6,000
8,000
8,000
12,000
12,000
2,500
2,500
3,500
3,500
2,500
2,500
Example Trial Balance:
Example Trial Balance