CHAPTER 6 TRIAL BALANCE

Form of Trial Balance

TRIAL BALANCE  The variance between debit side and credit side is called the balance  Once the balances of the individual accounts have been determined, a trial balance can be prepared  A trial balance is a list of all the accounts in the ledger with their current balances  A trial balance represents of the proof of the equality between debit balances and credit balances

The Usefulness of Trial Balance A trial balance will show a summary of the accounts in general ledger A trial balance will show a summary of the accounts in general ledger It will be the basis for preparing the financial statements It will be the basis for preparing the financial statements A trial balance is a testing process of the equality between debit balances and credit balances. It also defines the calculation validity in recording transaction in the current period A trial balance is a testing process of the equality between debit balances and credit balances. It also defines the calculation validity in recording transaction in the current period

Preparing of The Trial Balance The first step in preparing the trial balance is to determine the balance of each account in the ledger When the standard account form is used, the balance of each account appears in the balance column on the same line as the last posting to the accounts

 The procedure in preparing a trial balance will depend on the form of accounts in general ledger  When report form is used, the account balance can be monetored anytime  When T-account form is used, the balance of each account have to be calculated previously

The steps in Preparing T-Trial Balance Form To add the debit side in each account To add the debit side in each account To add the credit side in each account To add the credit side in each account To calculate the variance between debit side and credit side To calculate the variance between debit side and credit side To determine the balance of each account To determine the balance of each account To transfer the balance of each account into debit column or credit column of trial balance To transfer the balance of each account into debit column or credit column of trial balance

Accounting Cycle Transaction accures and information is recorded on a source document Source document information is recorded in a journal Transaction information is posted from the journal to the ledger Financial statement are prepared : Income Statement Statement of Owner’s Equity Balance Sheet Cash Flows Statement Notes of Financial Statement A Trial Balance is Prepared at the end of the Period In the accounting cycle shows that the trial balance is prepared after posting to general ledger

Procedure of Preparing Trial Balance – T-Account Form

Continuation ……….

Procedure of Preparing Trial Balance – Report Account Form

The Limitation of a Trial Balance A trial balance shows the balance of recorded accounts A trial balance shows the balance of recorded accounts There are still some unrecorded transaction in accounts at the end of period There are still some unrecorded transaction in accounts at the end of period It causes that trial balance doesn’t show the whole financial operation in a firm It causes that trial balance doesn’t show the whole financial operation in a firm Needs adjustment to prepare financial statements Needs adjustment to prepare financial statements

Discovery and correction of errors Errors will sometimes occur in journalizing and posting transaction Errors will sometimes occur in journalizing and posting transaction These kinds of errors may not show an inequality in the trial balance These kinds of errors may not show an inequality in the trial balance The types of errors that will not cause an inequality in the trial balance totals are the following: The types of errors that will not cause an inequality in the trial balance totals are the following: a. Failure to record a transaction or to post a transaction b. Recording the same erroneous amount for both the debit and the credit parts of a transaction c. Recording the same transaction more than once d. Posting a part of a transaction correctly as a debit or credit but to the wrong account

Discovery of Errors The trial balance is one of the primary ways for discovering errors in the ledger The trial balance is one of the primary ways for discovering errors in the ledger If the two totals of the trial balance are not equal, it is probably due to one or more of the errors If the two totals of the trial balance are not equal, it is probably due to one or more of the errors

Errors Causing Unequal Trial Balance Errors Trial Balance Preparation Errors Account Balance Errors Posting Errors Column Incorrectly Added Amount Incorrectly Entered on Trial Balance Balance Entered in Wrong Column or o mitted Balance Incorrectly Computed Balance Entered in Wrong Column of Account Wrong Amount Posted to an Account Debit Posted as Credit, or Vice Versa Debit or Credit Posting Omitted

Procedures for correcting errors Errors Correction Procedures 1. Journal entry is incorrect but not posted 2. Journal entry is correct but posted incorrectly 3. Journal entry in incorrect and posted 1. Draw a line through the error and insert correct title or amount 2. Draw a line through the error and post correctly 3. Journalize and post a correcting entry

The axample of Correcting Entry Assume that on May 5, 2008 a Rp. 12,500,000 purchased of office equipment on account was incorrectly journalized and posted as a debit to Supplies and a credit to Account Payable for Rp. 12,500,000. This posting of the incorrect entry is shown in the following T-account. Assume that on May 5, 2008 a Rp. 12,500,000 purchased of office equipment on account was incorrectly journalized and posted as a debit to Supplies and a credit to Account Payable for Rp. 12,500,000. This posting of the incorrect entry is shown in the following T-account.

IncorrectCorrect Supplies Accounts Payable Office Equipment Accounts Payable 12,500,000

The following is summarizing the balance of accounts to a trial balance at the end of period before adjusting in Cipta Jasa Karya, Co

Illustration 5 : Trial Balance of Cipta Jasa Karya, Co.