UNIT-4 Acct - 103

Asst. Prof, Deptt. of Accounting, CBAK UNIT-4 (Acct – 103) Syllabus Trial Balance: Meaning, Importance and Preparation of Trial Balance. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

MEANING & PURPOSE TRIAL BALANCE ??? The trial balance is the statement of Ledger account balance within a ledger of a business at a particular instance. >> Trial ?? Meaning = The act of testing something / Trying something to find about it >> Balance?? Meaning = To lag or linger behind Importance; The Trial Balance is prepare to check the mathematical / Arithmetical accuracy of accounts. This is the only purpose of Trial Balance.

THE TRIAL BALANCE The act of totaling debit balances and credit balances to confirm that total debits equal total credits. The trial balance is a list of accounts and their balances at a given time. The primary purpose of a trial balance is to prove debits = credits after posting. If debits and credits do not agree, the trial balance can be used to uncover errors in journalizing and posting.

THE TRIAL BALANCE The Steps in preparing the Trial Balance are: List the account titles and balances Total the debit and credit columns Prove the equality of the two columns Key to preparing a trial balance is making sure that all the account balances are listed under the correct column.  The appropriate columns are as follows: Assets = Debit balance Liabilities = Credit balance Expenses = Debit Balance Equity = Credit balance Revenue = Credit balance

A TRIAL BALANCE The total debits must equal the total credits.

LIMITATIONS OF A TRIAL BALANCE A trial balance does not prove all transactions have been recorded or the ledger is correct. Numerous errors may exist even though the trial balance columns agree. For example, the trial balance may balance even when: a transaction is not journalized a correct journal entry is not posted a journal entry is posted twice incorrect accounts used in journalizing or posting offsetting errors are made in recording

Practical Problems Problem: Saif opened the Campus Laundromat on September 1, 2008. During the first month of operations the following occurred. Sept. 1 Invested SR.20,000 cash in the business. 2 Paid SR.1,000 cash for store rent for September. 3 Purchased washers and dryers for SR.25,000, paying SR.10,000 in cash and signing SR.15,000, 6-month, 12% note payable. 4 Paid in cash of SR.1,200 for a one-year accident insurance policy in advance. 10 Received a bill from the Daily News for advertising the opening of the Laundromat SR.200. 20 Withdrew SR.700 cash for personal use. Determined that cash receipts for laundry services for the month were SR.6,200. Instructions (a) Journalize the September transactions. (Use J1 for the journal page number.) (b) Open ledger accounts and post the September transactions. (c) Prepare a trial balance at September 30, 2008.

General Journal Date Ref. Debit Credit Account Titles and Explanation 2008 Sept. 1 2 3 4 10 20 30 Cash Saif, Capital (Owner’s investment of cash in business) Rent Expense (Paid September rent) Laundry Equipment (washers and dryers ) Notes Payable (Purchased laundry equipment for cash and 6-month, 12% note payable) Prepaid Insurance (Paid one-year insurance policy) Advertising Expense Accounts Payable (Received bill from Daily News for advertising) Bob Sample, Drawing (Withdrew cash for personal use) Service Revenue (Received cash for services provided) 101 301 729 154 200 130 610 201 306 400 20,000 1,000 25,000 1,200 700 6,200 10,000 15,000

cash Prepaid Insurance Saif Capital Prepaid Insurance Saif Drawing Date Explanation Ref Debit Credit Balance 2008 Sept. 1 2 3 4 20 30 20,000 6,200 1,000 10,000 1,200 700 19,000 9,000 7,800 7,100 13,300 Date Explanation Ref Debit Credit Balance 2008 Sept. 10 J1 200 Saif Capital Date Explanation Ref Debit Credit Balance 2008 Sept. 1 J1 20,000 Prepaid Insurance Saif Drawing Date Explanation Ref Debit Credit Balance 2008 Sept. 4 J1 1,200 Date Explanation Ref Debit Credit Balance 2008 Sept. 30 J1 700 Laundry Equipment Service Revenue Date Explanation Ref Debit Credit Balance 2008 Sept. 30 J1 6,200 Date Explanation Ref Debit Credit Balance 2008 Sept. 3 J1 25,000

Advertising Expenses Notes Payable Debit Credit Cash Prepaid Insurance Date Explanation Ref Debit Credit Balance 2008 Sept. 10 J1 200 Date Explanation Ref Debit Credit Balance 2008 Sept. 3 J1 15,000 CAMPUS LAUNDROMAT Trial Balance September 30, 2008 Debit Credit Cash Prepaid Insurance Laundry Equipment Notes Payable Account Payable Saif Capital Saif Drawing Service Revenue Advertising Expenses Rent Expenses SR.13,300 1,200 25,000 700 200 1,000 SR.41,400 SR.15,000 20,000 6,200 Rent Expenses Date Explanation Ref Debit Credit Balance 2008 Sept. 2 J1 1,000

Problem: From the following ledger balances of Pioneer Advertising Agency Prepare a Trial Balance as on October 31 2009 Accounts Payable Cash Date Explanation Ref. Debit Credit Balance 2008 Oct. 5 J1 2,500 Date Explanation Re f . Debit Credit Balance 2008 Oct. 1 2 3 4 20 26 J1 J 10,000 1,200 900 600 500 4,000 11,200 10,300 9,700 9,200 5,200 15,200 Unearned Revenue Date Explanation Ref. Debit Credit Balance 2008 Oct. 2 J1 1,200 Capital Service Revenue Date Explanation Ref. Debit Credit Balance 2008 Oct. 1 J1 10,000 Date Explanation Ref. Debit Credit Balance 2008 Oct. 31 J1 10,000 Drawing Salaries Expenses Date Explanation Ref. Debit Credit Balance 2008 Oct. 20 J1 500 Date Explanation Ref. Debit Credit Balance 2008 Oct. 26 J1 4,000

Rent Expense Advertising Supplies Prepaid Insurance Office Equipment Date Explanation Ref. Debit Credit Balance 2008 Oct. 3 J1 900 Date Explanation Ref. Debit Credit Balance 2008 Oct. 5 J1 2,500 Prepaid Insurance Office Equipment Date Explanation Ref. Debit Credit Balance 2008 Oct. 4 J1 600 Date Explanation Ref. Debit Credit Balance 2008 Oct. 1 J1 5,000 Notes Payable Date Explanation Ref. Debit Credit Balance 2008 Oct. 1 J1 5,000

Pioneer Advertising Agency Trial Balance October 31,2009 Solution: Pioneer Advertising Agency Trial Balance October 31,2009 Debit Credit Cash SR.15,200 Advertising Supplies 2,500 Prepaid Insurance 600 Office Equipment 5,000 Notes Payable SR 5,000 Accounts Payable Unearned Revenue 1,200 C. R. Byrd, Capital 10,000 C. R. Byrd, Drawing 500 Service Revenue Salaries Expense 4,000 Rent Expense 900 SR28,700 SR 28,700

At December 31, 2008, the unadjusted trial balance of Kari Thresher Company shows the following balances for selected accounts:   Supplies SR. 8,500 Prepaid Insurance 12,000 Equipment 40,000 Accumulated Depreciation 16,000 Unearned Fees 15,000 Notes Payable 50,000 Fees Earned 40,000 Instructions Prepare the adjusting entries for the year ending December 31, 2008.

General Journal Date Account Title Debit Credit 2008 Dec. 31 Supplies Expense 5,500 Supplies 5,500 (SR.8,500 - SR.3,000) 31 Insurance Expense 6,000 Prepaid Insurance 6,000 (SR.12,000 x 6/12) 31 Depreciation Expense 8,000 Accumulated Depreciation 8,000 31 Unearned Fees 12,000 Fees Earned 12,000 31 Interest Expense 2,500 Interest Payable 2,500 (SR.50,000 x 10% x 6/12) 31 Accounts Receivable 3,500 Fees Earned 3,500 31 Salaries Expense 2,500 Salaries Payable 2,500 General Journal

Example Trial Balance: