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UNIT-4 Acct - 103. 2 UNIT-4 (Acct – 103) Syllabus Trial Balance: Meaning, Importance and Preparation of Trial Balance. Dr Masharique Ahmad Asst. Prof,

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Presentation on theme: "UNIT-4 Acct - 103. 2 UNIT-4 (Acct – 103) Syllabus Trial Balance: Meaning, Importance and Preparation of Trial Balance. Dr Masharique Ahmad Asst. Prof,"— Presentation transcript:

1 UNIT-4 Acct - 103

2 2 UNIT-4 (Acct – 103) Syllabus Trial Balance: Meaning, Importance and Preparation of Trial Balance. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

3 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 behindImportance; The Trial Balance is prepare to check the mathematical / Arithmetical accuracy of accounts. This is the only purpose of Trial Balance.

4 THE TRIAL BALANCE The act of totaling debit balances and credit balances to confirm that total debits equal total credits.debit balancescredit balances confirmtotaldebitscredits 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

5 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

6 The total debits must equal the total credits. A TRIAL BALANCE 6

7 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

8 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. 30Determined 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.

9 Date Account Titles and Explanation Ref.DebitCredit 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) 101 301 729 101 154 101 200 130 101 610 201 306 101 400 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

10 DateExplanationRefDebitCreditBalance 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 DateExplanationRefDebitCreditBalance 2008 Sept. 10 J1200 Prepaid Insurance DateExplanationRefDebitCreditBalance 2008 Sept. 1 J120,000 Saif Capital DateExplanationRefDebitCreditBalance 2008 Sept. 4 J11,200 DateExplanationRefDebitCreditBalance 2008 Sept. 30 J1700 Prepaid InsuranceSaif Drawing DateExplanationRefDebitCreditBalance 2008 Sept. 3 J125,000 DateExplanationRefDebitCreditBalanc e 2008 Sept. 30 J16,200 Laundry EquipmentService Revenue

11 DateExplanationRefDebitCreditBalance 2008 Sept. 3 J115,000 DateExplanationRefDebitCreditBalanc e 2008 Sept. 10 J1200 Notes Payable Advertising Expenses DateExplanationRefDebitCreditBalance 2008 Sept. 2 J11,000 Rent Expenses DebitCredit 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

12 Cash DateExplanationRef.DebitCreditBalance 2008 Oct. 5 J12,500 Accounts Payable Problem: From the following ledger balances of Pioneer Advertising Agency Prepare a Trial Balance as on October 31 2009 DateExplanationRef.DebitCreditBalance 2008 Oct. 2 J11,200 Unearned Revenue DateExplanationRef.DebitCreditBalance 2008 Oct. 1 J110,000 Capital DateExplanationRef.DebitCreditBalance 2008 Oct. 20 J1500 Drawing DateExplanationRef.DebitCreditBalance 2008 Oct. 31 J110,000 Service Revenue DateExplanationRef.DebitCreditBalance 2008 Oct. 26 J14,000 Salaries Expenses

13 DateExplanationRef.DebitCreditBalance 2008 Oct. 3 J1900 Rent Expense DateExplanationRef.DebitCreditBalance 2008 Oct. 5 J12,500 Advertising Supplies DateExplanationRef.DebitCreditBalance 2008 Oct. 4 J1600 Prepaid Insurance DateExplanationRef.DebitCreditBalance 2008 Oct. 1 J15,000 Office Equipment DateExplanationRef.DebitCreditBalance 2008 Oct. 1 J15,000 Notes Payable

14 DebitCredit CashSR.15,200 Advertising Supplies2,500 Prepaid Insurance600 Office Equipment5,000 Notes PayableSR 5,000 Accounts Payable2,500 Unearned Revenue1,200 C. R. Byrd, Capital10,000 C. R. Byrd, Drawing500 Service Revenue10,000 Salaries Expense4,000 Rent Expense900 SR28,700 Solution: Pioneer Advertising Agency Trial Balance October 31,2009

15 At December 31, 2008, the unadjusted trial balance of Kari Thresher Company shows the following balances for selected accounts: Supplies SR. 8,500 Prepaid Insurance12,000 Equipment40,000 Accumulated Depreciation16,000 Unearned Fees15,000 Notes Payable50,000 Fees Earned40,000 Instructions Prepare the adjusting entries for the year ending December 31, 2008.

16 Date Account Title Debit Credit 2008 Dec. 31Supplies Expense5,500 Supplies5,500 (SR.8,500 - SR.3,000) 31Insurance Expense6,000 Prepaid Insurance6,000 (SR.12,000 x 6/12) 31Depreciation Expense8,000 Accumulated Depreciation8,000 31Unearned Fees12,000 Fees Earned12,000 31Interest Expense2,500 Interest Payable2,500 (SR.50,000 x 10% x 6/12) 31Accounts Receivable3,500 Fees Earned3,500 31Salaries Expense2,500 Salaries Payable2,500 General Journal

17 Example Trial Balance Example Trial Balance:

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