2 Asst. Prof, Deptt. of Accounting, CBAK UNIT-4 (Acct – 103)SyllabusTrial Balance: Meaning, Importance and Preparation of Trial Balance.Dr Masharique AhmadAsst. 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 BALANCEThe 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.
5 THE TRIAL BALANCE The Steps in preparing the Trial Balance are: List the account titles and balancesTotal the debit and credit columnsProve the equality of the two columnsKey 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
6 A TRIAL BALANCEThe total debits must equal the total credits.
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 journalizeda correct journal entry is not posteda journal entry is posted twiceincorrect accounts used in journalizing or postingoffsetting errors are made in recording
8 Practical Problems Problem: Saif opened the Campus Laundromat on September 1, During the first month of operations the following occurred.Sept 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, % 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.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.
9 General Journal Date Ref. Debit Credit Account Titles and Explanation 2008Sept. 1234102030CashSaif, Capital(Owner’s investment of cash in business)Rent Expense(Paid September rent)Laundry Equipment (washers and dryers )Notes Payable(Purchased laundry equipment for cash and 6-month, 12% note payable)Prepaid Insurance(Paid one-year insurance policy)Advertising ExpenseAccounts Payable(Received bill from Daily News for advertising)Bob Sample, Drawing(Withdrew cash for personal use)Service Revenue(Received cash for services provided)10130172915420013061020130640020,0001,00025,0001,2007006,20010,00015,000
10 cash Prepaid Insurance Saif Capital Prepaid Insurance Saif Drawing DateExplanationRefDebitCreditBalance2008Sept. 1234203020,0006,2001,00010,0001,20070019,0009,0007,8007,10013,300DateExplanationRefDebitCreditBalance2008Sept. 10J1200Saif CapitalDateExplanationRefDebitCreditBalance2008Sept. 1J120,000Prepaid InsuranceSaif DrawingDateExplanationRefDebitCreditBalance2008Sept. 4J11,200DateExplanationRefDebitCreditBalance2008Sept. 30J1700Laundry EquipmentService RevenueDateExplanationRefDebitCreditBalance2008Sept. 30J16,200DateExplanationRefDebitCreditBalance2008Sept. 3J125,000
12 Problem:From the following ledger balances of Pioneer Advertising Agency Prepare a Trial Balance as on OctoberAccounts PayableCashDateExplanationRef.DebitCreditBalance2008Oct. 5J12,500DateExplanationRef.DebitCreditBalance2008Oct.12342026J1J10,0001,2009006005004,00011,20010,3009,7009,2005,20015,200Unearned RevenueDateExplanationRef.DebitCreditBalance2008Oct. 2J11,200CapitalService RevenueDateExplanationRef.DebitCreditBalance2008Oct. 1J110,000DateExplanationRef.DebitCreditBalance2008Oct. 31J110,000DrawingSalaries ExpensesDateExplanationRef.DebitCreditBalance2008Oct. 20J1500DateExplanationRef.DebitCreditBalance2008Oct. 26J14,000
14 Pioneer Advertising Agency Trial Balance October 31,2009 Solution:Pioneer Advertising AgencyTrial BalanceOctober 31,2009DebitCreditCashSR.15,200Advertising Supplies2,500Prepaid Insurance600Office Equipment5,000Notes PayableSR 5,000Accounts PayableUnearned Revenue1,200C. R. Byrd, Capital10,000C. R. Byrd, Drawing500Service RevenueSalaries Expense4,000Rent Expense900SR28,700SR 28,700
15 At December 31, 2008, the unadjusted trial balance of Kari Thresher Company shows the following balances for selected accounts:Supplies SR. 8,500Prepaid Insurance 12,000Equipment 40,000Accumulated Depreciation 16,000Unearned Fees 15,000Notes Payable 50,000Fees Earned 40,000InstructionsPrepare the adjusting entries for the year ending December 31, 2008.
16 General Journal Date Account Title Debit Credit 2008 Dec. 31 Supplies Expense 5,500Supplies 5,500(SR.8,500 - SR.3,000)31 Insurance Expense 6,000Prepaid Insurance 6,000(SR.12,000 x 6/12)31 Depreciation Expense 8,000Accumulated Depreciation 8,00031 Unearned Fees 12,000Fees Earned 12,00031 Interest Expense 2,500Interest Payable 2,500(SR.50,000 x 10% x 6/12)31 Accounts Receivable 3,500Fees Earned 3,50031 Salaries Expense 2,500Salaries Payable 2,500General Journal