0 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7, Section 3 Preparing a Trial Balance What Do You Think? Why must total debits equal total credits?

1 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea To learn how to prove that your accounting system is in balance. It is the proof that your total debits equal your total credits. You Will Learn  the steps in preparing a trial balance.  how to find and correct errors in a trial balance. Preparing a Trial Balance SECTION 7.3

2 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  proving the ledger  trial balance  transposition error  slide error  correcting entry Preparing a Trial Balance SECTION 7.3

3 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Fifth Step in the Accounting Cycle: The Trial Balance In order for an accounting system to work efficiently, it is important to remember the necessary steps to keep it in balance:  Calculating the balance.  Finding any errors that may have occurred.  Using general rules and guidelines to narrow down where and why the mistake was made.  Correcting the mistake. Preparing a Trial Balance SECTION 7.3

4 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Fifth Step in the Accounting Cycle: The Trial Balance Once the journal entries have been properly posted to the ledger, the sum of the debits should equal the sum of the credits. The final figures should be the same; this is called proving the ledger. Preparing a Trial Balance SECTION 7.3

5 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Fifth Step in the Accounting Cycle: The Trial Balance To prove the ledger, accountants prepare a list of all the account names and their current balances. This list is called the trial balance. If the totals are equal, the trial balance is in balance. If they are not, try adding the columns up again. If there is still a mistake, it must be corrected. Preparing a Trial Balance SECTION 7.3

6 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Finding an Error If there is an error, one possibility may be that two numbers were reversed when recording the information from the journal, called a transposition error. One way to help check for these kinds of errors is if the difference between the credits and the debits is divisible by 9. An example of this is if $469 was written as $496. Preparing a Trial Balance SECTION 7.3

7 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Finding an Error Moving a decimal point by mistake is called a slide error. An example is if you were to write $25,000 instead of $2,500. Preparing a Trial Balance SECTION 7.3

8 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Correcting Entries If a mistake is made, it will have to be corrected with a correcting entry. These are made after the journal entry has been posted, and should never be erased. The proper procedure is:  To post the entry in the ledger the same as any other entry.  Use the words correcting entry in the description column. Preparing a Trial Balance SECTION 7.3

9 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Correcting Entries Making a correcting entry to the general journal. Preparing a Trial Balance SECTION 7.3

10 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Preparing a Trial Balance SECTION 7.3 Correcting Entries Posting correcting entries to ledger accounts.

11 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  proving the ledger Adding all debit balances and all credit balances of ledger accounts, and then comparing the two totals to see whether they are equal.  trial balance A list of all the general ledger account names and balances; it is prepared to prove the ledger.  transposition error Error that occurs when two digits within an amount are accidentally reversed, or transposed. Preparing a Trial Balance SECTION 7.3

12 Glencoe Accounting Unit 2 Chapter 7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  slide error Error that occurs when a decimal point is moved by mistake.  correcting entry An entry made to correct an error in a journal entry discovered after posting. Preparing a Trial Balance SECTION 7.3