Section 3: Preparing a Trial Balance Enduring Understandings: The trial balance is proof that total debits = total credits in the ledger. To error is human. Essential Questions: How do you prepare a trial balance? How do you find and correct errors in the trial balance?

Section 3: Preparing a Trial Balance Objectives: Demonstrate how to prepare a trial balance. Analyze business transactions using prior knowledge of the four steps and the rules to debits and credits Journalize and post business transactions

Section 3: Preparing a Trial Balance Objectives: Locate and identify journal entries that are incorrect Use proper accounting principles to correct the wrong journal entries using the three methods

What is the purpose of a Trial Balance? A formal way to prove the ledger. Fifth step in the accounting cycle After all journal entries have been posted to the accounts in the general ledger …….

What is the purpose of a Trial Balance?  Step 1 – ADD ALL Debit Balances  Step 2 – ADD ALL Credit Balances  Step 3 – COMPARE THE TWO TOTALS DO THEY EQUAL?????  This is called….PROVING THE LEDGER!

Try it yourselves…. Problem 7-6  Step 1 – ADD ALL Debit Balances  Step 2 – ADD ALL Credit Balances  Step 3 – COMPARE THE TWO TOTALS DO THEY EQUAL?????

Correcting Entries “To err is human… but to really foul things up, you need a computer” What does this quote mean to you? How does it apply to accounting?

Mistakes Will Happen…  In accounting, if a mistake is made…there is only 1 single rule that applies….

Making Correcting Entries Depends…  When the error is made  Where the error is made

3 Types of Errors you will See  An Error in the journal (the entry has not yet been posted)  Journal Entry is correct, however you made a mistake while posting to the ledger  Error in a journal entry that has already been posted (both journal and ledger are incorrect)

What is wrong with the following example (error type 1)? How would you correct it? If you discover an error before posting!

Example: On January 1, Mrs. Nemec invested $52,000 to open up a business called: “Nemec’s Accountants” DateDescription Post Ref DebitCredit Jan1Cash in Bank $25,000 Mrs. Nemec, Capital $25,000

Correcting in the Ledger, if Journal Entry is correct DateDescription Post Ref DebitCredit Balance DebitCredit Jan1G1 $25,000

A Correcting “Entry” is made when…..  The journal entry has already been posted, however the journal entry is incorrect

Imagine the Following Example:  On February 15, Nemec’s Accountants paid the monthly rent of $1,500 Rent Expense Cash in Bank DebitCreditDebitCredit $1,500

However the Journal Entry that was recorded is… DateDescription Post Ref DebitCredit Feb15 Advertising Expense405 $1,500 Cash in Bank101 $1,500

Acct Name: Advertising Expense DateDescription Post Ref DebitCredit Balance DebitCredit Jan1G1 $20,000 Feb15G2 $1,500$21,500

Acct Name: Rent Expense DateDescription Post Ref DebitCredit Balance DebitCredit Jan15G1$2,000

Make a Correcting “Journal” Entry First DateDescription Post Ref DebitCredit Feb15 Rent Expense401 $1,500 Advertising Exp.405 $1,500

Then Post your Correcting “Journal” Entries

Acct Name: Advertising Expense DateDescription Post Ref DebitCredit Balance DebitCredit Jan1G1 $20,000 Feb15G2 $1,500$21,500 Feb15Correcting Entry G2$1,500$20,000

Acct Name: Rent Expense DateDescription Post Ref DebitCredit Balance DebitCredit Jan15G1$2,000 Feb15Correcting Entry G2$1,500$3,500

Try it yourselves… 7.3  Problem 7.3 in your workbook & textbook 7.4 and 7.9  Check answers with me, then move on to Problem 7.4 and 7.9 in your workbook

Problem 7.3 Solution DateDescription Post Ref DebitCredit May10Computer Equipment120 $1,500 Cash in Bank101 $1,500 Check Office Equipment115 $1,500 Computer Equipment120 $1,500 Memo 47

Account Name: Computer Equipment DateDescription Post Ref DebitCredit Balance DebitCredit May1Balance $3,000 10G6$1,500$4, Correcting Entry G6$1,500$3,000

Account Name: Office Equipment DateDescription Post Ref DebitCredit Balance DebitCredit May1Balance $ Correcting Entry G6$1,500$2,200