1. Chapter 7 Quiz on next Tuesday Nov 3

2.  Let’s review how trial balance is made: 1. Journal entry is made in journal. Debit amount and Credit amount must be equal. 2. Journal entry amounts are posted to debit column or credit column in ledger accounts (or BCA) 3. New ledger account balances are calculated each time amounts from journals are posted.

3.  Let’s review how trial balance is made: 4. Ending balances of each ledger accounts are identified as either debit balance or credit balance. 5. The totals of the two columns (debit column and credit column) in the trial balance are calculated. If both totals are the same, the ledger is in balance. 6. Then we can go ahead and make income statement and balance sheet by using the numbers from trial balance.

4.  If one mistake occurs when amounts are entered (in journal), transferred, or calculated, the trial balance totals will be unequal. Then financial statements can not be prepared.  The mistakes must be found.  If only one mistake caused the trial balance to be out of balance, then it is relatively easy to find.

5.  If the trial balance totals do not equal, any one of the following four quick tests might reveal a single error.  First, you should calculate the difference between the debit and credit totals in trial balance.  Your goal is to get the amount of this difference to zero.

6.  Start with any of the following 4 tests: 1. If the difference is a multiple of 10 such as 10 cents or 1 dollar, then an error in addition has likely been made. 2. Check both the ledger and journal to see if the difference is equal to an amount entered in the ledger or the journal. Whenever you find such an amount, verify it to make sure that it has been entered only once or that it has not been omitted.

7. Trial Balance Dr.Cr. Bank110 AR40 Office supplies30 (Error) AP55 Capital200 Expense 150 Expense 225 Total225285 (Difference is 60) **** 60 / 2 = 30

8.  Start with any of the following 4 tests: 3. Divide the difference by two. Then search the trial balance and the ledger accounts for this divided amount. ◦ If an equivalent amount is found, check it carefully. ◦ See if a debit amount has been posted or transferred as a credit, or vice versa. ◦ An error of this type always produces a difference equal to twice the amount of the error ◦ This type of error occurs either during posting or when preparing the trial balance.

9. 4. If the trial balance difference is a multiple of 9, it is likely that a transposition error or a decimal point error has occurred. ◦ Transposition error is a mistake caused by changing the order of digits when transfering figures from one place to another.

10. ◦ For example, instead of posting 137, you post 173. The difference is 36, which is a multiple of 9. ◦ A decimal point error: 1.19 has been entered as 119.00. Again the difference is 117.81, which is a multiple of 9. This type of error is typically multiples of 9. ◦ P239 Figure 7.2

11. Transactions occur. Entries recorded in journal. Posting from the journal to the ledger accounts. Ledger balance by means of trial balance.

12.  Review Questions #5 to 13(P240)  Exercises # 2 and #3 (P240)