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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”

Post
Date Description Ref Debit Credit
Jan 1 Cash in Bank $25,000
Mrs. Nemec, Capital $25,000
Correcting in the Ledger, if
Journal Entry is correct
Balance
Post
Date Description Debit Credit
Ref Debit Credit

Jan 1 G1
$25,000 $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
Debit Credit Debit Credit

$1,500 $1,500
However the Journal Entry that
was recorded is…
Post
Date Description Ref Debit Credit
Feb 15 Advertising Expense 405 $1,500
Cash in Bank 101 $1,500
Acct Name: Advertising Expense

Balance
Post
Date Description Debit Credit
Ref Debit Credit

Jan 1 G1
$20,000 $20,000

Feb 15 G2
$1,500 $21,500
Acct Name: Rent Expense

Balance
Post
Date Description Debit Credit
Ref Debit Credit

Jan 15 G1 $2,000 $2,000


Make a Correcting “Journal”
Entry First
Post
Date Description Ref Debit Credit
Feb 15 Rent Expense 401 $1,500
Advertising Exp. 405 $1,500
Then Post your Correcting
“Journal” Entries
Acct Name: Advertising Expense

Balance
Post
Date Description Debit Credit
Ref Debit Credit

Jan 1 G1
$20,000 $20,000

Feb 15 G2
$1,500 $21,500

Feb 15 Correcting G2 $1,500 $20,000


Entry
Acct Name: Rent Expense

Balance
Post
Date Description Debit Credit
Ref Debit Credit

Jan 15 G1 $2,000 $2,000

Feb 15 Correcting G2 $1,500 $3,500


Entry
Try it yourselves…

 Problem 7.3 in your workbook & textbook

 Check answers with me, then move on to


Problem 7.4 and 7.9 in your workbook
Problem 7.3 Solution

Post
Date Description Ref Debit Credit
May 10 Computer Equipment 120 $1,500
Cash in Bank 101 $1,500
Check 8099

20 Office Equipment 115 $1,500


Computer Equipment 120 $1,500
Memo 47
Account Name: Computer
Equipment
Balance
Post
Date Description Debit Credit
Ref Debit Credit

May 1 Balance  $3,000

10 G6 $1,500 $4,500

Correcting
20 G6 $1,500 $3,000
Entry
Account Name: Office
Equipment
Balance
Post
Date Description Debit Credit
Ref Debit Credit

May 1 Balance 
$700

Correcting
20 G6 $1,500 $2,200
Entry