Analyzing Transactions LO 4a –Preparing a Trial Balance

LO 4 Trial Balance The equality of debits and credits in the ledger should be proven at the end of each accounting period by preparing a trial balance. A trial balance is prepared at the end of the accounting period. Its purpose is to make sure that the accounts in the ledger are in balance. The trial balance proves that the total debits equal total credits.

Unadjusted Trial Balance LO 4 The Heading NetSolutions Unadjusted Trial Balance December 31, 2011 This is an unadjusted trial balance because this statement includes the accounts before the adjusting entries (discussed in Chapter 3). The first trial balance prepared in the accounting cycle is the Unadjusted Trial Balance. It is called unadjusted because it is completed before adjusting entries are prepared.

Unadjusted Trial Balance LO 4 The Heading NetSolutions Unadjusted Trial Balance December 31, 2011 Like the balance sheet, the trial balance is prepared as of a specific date. For NetSolutions, it is December 31, 2011. Like the financial statements, a trial balance begins with a 3-line heading. A trial balance is completed as of a specific date.

LO 4 Source of Information NetSolutions Unadjusted Trial Balance December 31, 2011 Debit Balance Credit Balance Cash 2 065 00 Accounts Receivable 2 220 00 Supplies 2 000 00 Each of the accounts in the ledger is listed on the trial balance in the order that it appears in the ledger. Accounts with a debit balance are written in the Debit column, which is the column on the left. Accounts with a credit balance will be listed in the Credit column, on the right. The question is, how was the debit balance of $2,065 for Cash determined? How was the debit balance of $2,065 for Cash determined?

LO 4 Source of Information ACCOUNT ACCOUNT NO. Debit Credit Date Item Post. Ref. 11 Cash 2009 Nov. 1 1 25 000 00 25 000 00 5 1 20 000 00 5 000 00 18 1 7 500 00 12 500 00 30 1 3 650 00 8 850 00 30 1 950 00 7 900 00 31 4 2 870 00 4 065 00 31 4 2 000 00 2 065 00 The cash account in the ledger had a debit balance of $2,065, which is illustrated in this 4-column ledger account. That balance is listed on a trial balance prepared on November 30. The amount was determined from the December 31 balance of the Cash account in the ledger.

Unadjusted Trial Balance LO 4 Source of Information NetSolutions Unadjusted Trial Balance December 31, 2011 Debit Balance Credit Balance Cash 2 065 00 Accounts Receivable 2 220 00 Supplies 2 000 00 The next account in the ledger is Accounts Receivable. The $2,220 balance of accounts receivable is entered in the trial balance directly after cash. Likewise, the $2,220 amount for Accounts Receivable is the account’s December 31 balance in the ledger.

Unadjusted Trial Balance LO 4 Unadjusted Trial Balance Each of the accounts in the ledger is listed on the trial balance in the order that it appears in the ledger. Accounts with a debit balance are written in the Debit column, which is the column on the left. Accounts with a credit balance will be listed in the Credit column, on the right. When all of the accounts have been listed, the two columns are added, and their totals are listed at the bottom of the columns. If this process has been done correctly and there are no errors in the ledger, the total of debits should equal the total of credits. If the balances are unequal, it is helpful to work backward to try to uncover the error.

LO 4 A Caution The trial balance does not provide complete proof of the accuracy of the ledger. It indicates only that the debits and credits are equal. The trial balance proves only that the debits and credits of the ledger are equal. There are a number of errors that may occur that would not be revealed by the trial balance. For example, a transaction may be recorded for the wrong amount, or a transaction may be excluded from the ledger. Additionally, a transaction may be posted to the incorrect account. All three of these errors would not cause the ledger to be out of balance. That is why it’s important for someone to look carefully at the amounts for unusual results.