UNIT-4
Acct - 103
2
UNIT-4 (Acct – 103)
Syllabus
Trial Balance: Meaning, Importance and
Preparation of Trial Balance.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting,
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.
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
The total debits
must
equal the
total credits.
A TRIAL BALANCE
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
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.
Date Account Titles and Explanation Ref. Debit Credit 2008 Sept. 1 2 3 4 10 20 30 Cash Saif, Capital
(Owner’s investment of cash in business) Rent Expense
Cash
(Paid September rent)
Laundry Equipment (washers and dryers ) Cash
Notes Payable
(Purchased laundry equipment for cash and 6-month, 12% note payable)
Prepaid Insurance Cash
(Paid one-year insurance policy) Advertising Expense
Accounts Payable
(Received bill from Daily News for advertising) Bob Sample, Drawing
Cash
(Withdrew cash for personal use) Cash
Service Revenue
(Received cash for services provided)
101 301 729 101 154 101 200 130 101 610 201 306 101 101 400 20,000 1,000 25,000 1,200 200 700 6,200 20,000 1,000 10,000 15,000 1,200 200 700 6,200 General Journal
Date Explanation Ref Debit Credit Balance 2008 Sept. 1 2 3 4 20 30 20,000 6,200 1,000 10,000 1,200 700 20,000 19,000 9,000 7,800 7,100 13,300 cash
Date Explanation Ref Debit Credit Balance
2008
Sept. 10 J1 200 200
Prepaid Insurance
Date Explanation Ref Debit Credit Balance
2008
Sept. 1 J1 20,000 20,000
Saif Capital
Date Explanation Ref Debit Credit Balance
2008
Sept. 4 J1 1,200 1,200
Date Explanation Ref Debit Credit Balance
2008
Sept. 30 J1 700 700
Prepaid Insurance Saif Drawing
Date Explanation Ref Debit Credit Balance
2008
Sept. 3 J1 25,000 25,000
Date Explanation Ref Debit Credit Balance
2008
Sept. 30 J1 6,200 6,200
Date Explanation Ref Debit Credit Balance
2008
Sept. 3 J1 15,000 15,000
Date Explanation Ref Debit Credit Balance
2008
Sept. 10 J1 200 200
Notes Payable Advertising Expenses
Date Explanation Ref Debit Credit Balance
2008
Sept. 2 J1 1,000 1,000
Rent Expenses Debit Credit
Cash Prepaid Insurance Laundry Equipment Notes Payable Account Payable Saif Capital Saif Drawing Service Revenue Advertising Expenses Rent Expenses SR.13,300 1,200 25,000 700 200 1,000 SR.41,400 SR.15,000 200 20,000 6,200 SR.41,400 CAMPUS LAUNDROMAT Trial Balance September 30, 2008
Date Explanation Re f. Debit Credit Balance 2008 Oct. 1 2 3 4 20 26 31 J1 J1 J1 J1 J1 J1 J1 10,000 1,200 10,000 900 600 500 4,000 10,000 11,200 10,300 9,700 9,200 5,200 15,200
Cash Date Explanation Ref. Debit Credit Balance
2008
Oct. 5 J1 2,500 2,500
Accounts Payable Problem:
From the following ledger balances of Pioneer Advertising Agency Prepare a Trial Balance as on October 31 2009
Date Explanation Ref. Debit Credit Balance
2008
Oct. 2 J1 1,200 1,200
Unearned Revenue
Date Explanation Ref. Debit Credit Balance
2008
Oct. 1 J1 10,000 10,000
Capital
Date Explanation Ref. Debit Credit Balance
2008
Oct. 20 J1 500 500
Drawing
Date Explanation Ref. Debit Credit Balance
2008
Oct. 31 J1 10,000 10,000
Service Revenue
Date Explanation Ref. Debit Credit Balance
2008
Oct. 26 J1 4,000 4,000
Date Explanation Ref. Debit Credit Balance
2008
Oct. 3 J1 900 900
Rent Expense
Date Explanation Ref. Debit Credit Balance
2008
Oct. 5 J1 2,500 2,500
Advertising Supplies
Date Explanation Ref. Debit Credit Balance
2008
Oct. 4 J1 600 600
Prepaid Insurance
Date Explanation Ref. Debit Credit Balance
2008
Oct. 1 J1 5,000 5,000
Office Equipment
Date Explanation Ref. Debit Credit Balance
2008
Oct. 1 J1 5,000 5,000
Debit Credit Cash SR.15,200 Advertising Supplies 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 10,000 Salaries Expense 4,000 Rent Expense 900 SR28,700 SR 28,700 Solution:
Pioneer Advertising Agency Trial Balance
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
Date Account Title Debit Credit 2008
Dec. 31 Supplies Expense 5,500
Supplies 5,500 (SR.8,500 - SR.3,000) 31 Insurance Expense 6,000 Prepaid Insurance 6,000 (SR.12,000 x 6/12) 31 Depreciation Expense 8,000 Accumulated Depreciation 8,000 31 Unearned Fees 12,000 Fees Earned 12,000 31 Interest Expense 2,500 Interest Payable 2,500 (SR.50,000 x 10% x 6/12) 31 Accounts Receivable 3,500 Fees Earned 3,500 31 Salaries Expense 2,500 Salaries Payable 2,500 General Journal
Example Trial Balance
Example Trial Balance:
