Prepare a Trial Balance – Principles of Accounting, Volume 1

The final total in the debit column must be the same dollar amount that is determined in the final credit column. For example, if you determine that the final ... Skiptocontent AnalyzingandRecordingTransactions 17PrepareaTrialBalance Onceallthemonthlytransactionshavebeenanalyzed,journalized,andpostedonacontinuousday-to-daybasisovertheaccountingperiod(amonthinourexample),wearereadytostartworkingonpreparingatrialbalance(unadjusted).Preparinganunadjustedtrialbalanceisthefourthstepintheaccountingcycle.Atrialbalanceisalistofallaccountsinthegeneralledgerthathavenonzerobalances.Atrialbalanceisanimportantstepintheaccountingprocess,becauseithelpsidentifyanycomputationalerrorsthroughoutthefirstthreestepsinthecycle. Notethatforthisstep,weareconsideringourtrialbalancetobeunadjusted.Theunadjustedtrialbalanceinthissectionincludesaccountsbeforetheyhavebeenadjusted.Asyouseeinstep6oftheaccountingcycle,wecreateanothertrialbalancethatisadjusted(seeTheAdjustmentProcess). Whenconstructingatrialbalance,wemustconsiderafewformattingrules,akintothoserequirementsforfinancialstatements: Theheadermustcontainthenameofthecompany,thelabelofaTrialBalance(Unadjusted),andthedate. Accountsarelistedintheaccountingequationorderwithassetslistedfirstfollowedbyliabilitiesandfinallyequity. Amountsatthetopofeachdebitandcreditcolumnshouldhaveadollarsign. Whenamountsareadded,thefinalfigureineachcolumnshouldbeunderscored. Thetotalsattheendofthetrialbalanceneedtohavedollarsignsandbedouble-underscored. TransferringinformationfromT-accountstothetrialbalancerequiresconsiderationofthefinalbalanceineachaccount.Ifthefinalbalanceintheledgeraccount(T-account)isadebitbalance,youwillrecordthetotalintheleftcolumnofthetrialbalance.Ifthefinalbalanceintheledgeraccount(T-account)isacreditbalance,youwillrecordthetotalintherightcolumn. Onceallledgeraccountsandtheirbalancesarerecorded,thedebitandcreditcolumnsonthetrialbalancearetotaledtoseeifthefiguresineachcolumnmatcheachother.Thefinaltotalinthedebitcolumnmustbethesamedollaramountthatisdeterminedinthefinalcreditcolumn.Forexample,ifyoudeterminethatthefinaldebitbalanceis$24,000thenthefinalcreditbalanceinthetrialbalancemustalsobe$24,000.Ifthetwobalancesarenotequal,thereisamistakeinatleastoneofthecolumns. Let’snowtakealookattheT-accountsandunadjustedtrialbalanceforPrintingPlustoseehowtheinformationistransferredfromtheT-accountstotheunadjustedtrialbalance. Forexample,Cashhasafinalbalanceof$24,800onthedebitside.ThisbalanceistransferredtotheCashaccountinthedebitcolumnontheunadjustedtrialbalance.AccountsReceivable($1,200),Supplies($500),Equipment($3,500),Dividends($100),SalariesExpense($3,600),andUtilityExpense($300)alsohavedebitfinalbalancesintheirT-accounts,sothisinformationwillbetransferredtothedebitcolumnontheunadjustedtrialbalance.AccountsPayable($500),UnearnedRevenue($4,000),CommonStock($20,000)andServiceRevenue($9,500)allhavecreditfinalbalancesintheirT-accounts.Thesecreditbalanceswouldtransfertothecreditcolumnontheunadjustedtrialbalance. Onceallbalancesaretransferredtotheunadjustedtrialbalance,wewillsumeachofthedebitandcreditcolumns.Thedebitandcreditcolumnsbothtotal$34,000,whichmeanstheyareequalandinbalance.However,justbecausethecolumntotalsareequalandinbalance,wearestillnotguaranteedthatamistakeisnotpresent. Whathappensifthecolumnsarenotequal? EnronandArthurAndersen Oneofthemostwell-knownfinancialschemesisthatinvolvingthecompaniesEnronCorporationandArthurAndersen.Enrondefraudedthousandsbyintentionallyinflatingrevenuesthatdidnotexist.ArthurAndersenwastheauditingfirminchargeofindependentlyverifyingtheaccuracyofEnron’sfinancialstatementsanddisclosures.ThismeanttheywouldreviewstatementstomakesuretheyalignedwithGAAPprinciples,assumptions,andconcepts,amongotherthings. IthasbeenallegedthatArthurAndersenwasnegligentinitsdealingswithEnronandcontributedtothecollapseofthecompany.ArthurAndersenwasbroughtuponachargeofobstructionofjusticeforshreddingimportantdocumentsrelatedtocriminalactionsbyEnron.Theywerefoundguiltybuthadthatconvictionoverturned.However,thedamagewasdone,andthecompany’sreputationpreventeditfromoperatingasithad.1 LocatingErrors Sometimeserrorsmayoccurintheaccountingprocess,andthetrialbalancecanmakethoseerrorsapparentwhenitdoesnotbalance. Onewaytofindtheerroristotakethedifferencebetweenthetwototalsanddividethedifferencebytwo.Forexample,let’sassumethefollowingisthetrialbalanceforPrintingPlus. Younoticethatthebalancesarenotthesame.Findthedifferencebetweenthetwototals:$34,100–$33,900=$200difference.Nowdividethedifferencebytwo:$200/2=$100.Sincethecreditsidehasahighertotal,lookcarefullyatthenumbersonthecreditsidetoseeifanyofthemare$100.TheDividendsaccounthasa$100figurelistedinthecreditcolumn.Dividendsnormallyhaveadebitbalance,buthereitisacredit.LookbackattheDividendsT-accounttoseeifitwascopiedontothetrialbalanceincorrectly.IftheansweristhesameastheT-account,thentraceitbacktothejournalentrytocheckformistakes.YoumaydiscoverinyourinvestigationthatyoucopiedthenumberfromtheT-accountincorrectly.Fixyourerror,andthedebittotalwillgoup$100andthecredittotaldown$100sothattheywillbothnowbe$34,000. Anotherwaytofindanerroristotakethedifferencebetweenthetwototalsanddividebynine.Iftheoutcomeofthedifferenceisawholenumber,thenyoumayhavetransposedafigure.Forexample,let’sassumethefollowingisthetrialbalanceforPrintingPlus. Findthedifferencebetweenthetwototals:$35,800–34,000=$1,800difference.Thisdifferencedividedbynineis$200($1,800/9=$200).Lookingatthedebitcolumn,whichhasthehighertotal,wedeterminethattheEquipmentaccounthadtransposedfigures.Theaccountshouldbe$3,500andnot$5,300.Wetransposedthethreeandthefive. Whatdoyoudoifyouhavetriedbothmethodsandneitherhasworked?Unfortunately,youwillhavetogobackthroughonestepatatimeuntilyoufindtheerror. Ifatrialbalanceisinbalance,doesthismeanthatallofthenumbersarecorrect?Notnecessarily.Wecanhaveerrorsandstillbemathematicallyinbalance.Itisimportanttogothrougheachstepverycarefullyandrecheckyourworkoftentoavoidmistakesearlyonintheprocess. Aftertheunadjustedtrialbalanceispreparedanditappearserror-free,acompanymightlookatitsfinancialstatementstogetanideaofthecompany’spositionbeforeadjustmentsaremadetocertainaccounts.Amorecompletepictureofcompanypositiondevelopsafteradjustmentsoccur,andanadjustedtrialbalancehasbeenprepared.ThesenextstepsintheaccountingcyclearecoveredinTheAdjustmentProcess. CompletingaTrialBalance CompletethetrialbalanceforMagnificentLandscapingServiceusingthefollowingT-accountfinalbalanceinformationforApril30,2018. Solution CorrectingErrorsintheTrialBalance Youownasmallconsultingbusiness.Eachmonth,youprepareatrialbalanceshowingyourcompany’sposition.Afterpreparingyourtrialbalancethismonth,youdiscoverthatitdoesnotbalance.Thedebitcolumnshows$2,000moredollarsthanthecreditcolumn.Youdecidetoinvestigatethiserror. Whatmethodscouldyouusetofindtheerror?Whataretheramificationsifyoudonotfindandfixthiserror?Howcanyouminimizethesetypesoferrorsinthefuture? KeyConceptsandSummary Thetrialbalancecontainsalistingofallaccountsinthegeneralledgerwithnonzerobalances.InformationistransferredfromtheT-accountstothetrialbalance. Sometimeserrorsoccuronthetrialbalance,andtherearewaystofindtheseerrors.Onemayhavetogothrougheachstepoftheaccountingprocesstolocateanerroronthetrialbalance. ExerciseSetA (Figure)Prepareanunadjustedtrialbalance,incorrectformat,fromthealphabetizedaccountinformationasfollows.Assumeallaccountshavenormalbalances. ExerciseSetB (Figure)Prepareanunadjustedtrialbalance,incorrectformat,fromthealphabetizedaccountinformationasfollows.Assumeallaccountshavenormalbalances. ProblemSetA (Figure)Prepareanunadjustedtrialbalance,incorrectformat,fromthefollowingalphabetizedaccountinformation.Assumeaccountshavenormalbalances. (Figure)Prepareanunadjustedtrialbalance,incorrectformat,fromthefollowingalphabetizedaccountinformation.Assumealltheaccountshavenormalbalances. ProblemSetB (Figure)Prepareanunadjustedtrialbalance,incorrectformat,fromthefollowingalphabetizedaccountinformation.Assumeallaccountshavenormalbalances. (Figure)Prepareanunadjustedtrialbalance,incorrectformat,fromthefollowingalphabetizedaccountinformation.Assumeallaccountshavenormalbalances. ThoughtProvokers (Figure)AnalyzeTrustyCompany’strialbalanceandtheadditionalinformationprovidedtodeterminethefollowing: whatiscausingthetrialbalancetobeoutofbalance anyothererrorsthatrequirecorrectionsthatareidentifiedduringyouranalysis theeffect(ifany)thatcorrectingtheerrorswillhaveontheaccountingequation Areviewoftransactionsrevealedthefollowingfacts: Aservicefeeof$18,000wasearned(butnotyetcollected)bytheendoftheperiodbutwasaccidentallynotrecordedasrevenueatthattime. Atranspositionerroroccurredwhentransferringtheaccountbalancesfromtheledgertothetrialbalance.Salariesexpenseshouldhavebeenlistedonthetrialbalanceas$64,500butwasinadvertentlyrecordedas$46,500. Twomachinesthatcost$9,000eachwerepurchasedonaccountbutwerenotrecordedincompanyaccountingrecords. Footnotes 1JamesTitcomb.“ArthurAndersenReturns12YearsafterEnronScandal.”TheTelegraph.September2,2014.https://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11069713/Arthur-Andersen-returns-12-years-after-Enron-scandal.html Glossary trialbalance listofallaccountsinthegeneralledgerthathavenonzerobalances unadjustedtrialbalance trialbalancethatincludesaccountsbeforetheyhavebeenadjusted Previous:UseJournalEntriestoRecordTransactionsandPosttoT-Accounts Next:WhyItMatters Backtotop License PrinciplesofAccounting,Volume1:FinancialAccountingbyOSCRiceUniversityislicensedunderaCreativeCommonsAttribution-NonCommercial-ShareAlike4.0InternationalLicense,exceptwhereotherwisenoted. ShareThisBook ShareonTwitter