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.

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”

Date DescriptionPost

Ref Debit Credit

Jan 1 Cash in Bank $25,000

Mrs. Nemec, Capital $25,000

Correcting in the Ledger, if Journal Entry is correct

Date DescriptionPost

RefDebit Credit

Balance

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…

Date DescriptionPost

Ref Debit Credit

Feb 15 Advertising Expense 405 $1,500

Cash in Bank 101 $1,500

Acct Name: Advertising Expense

Date DescriptionPost

RefDebit Credit

Balance

Debit Credit

Jan 1 G1 $20,000 $20,000

Feb 15 G2$1,500 $21,500

Acct Name: Rent Expense

Date DescriptionPost

RefDebit Credit

Balance

Debit Credit

Jan 15 G1 $2,000 $2,000

Make a Correcting “Journal” Entry First

Date DescriptionPost

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

Date DescriptionPost

RefDebit Credit

Balance

Debit Credit

Jan 1 G1 $20,000 $20,000

Feb 15 G2 $1,500 $21,500

Feb 15 Correcting Entry

G2 $1,500 $20,000

Acct Name: Rent Expense

Date DescriptionPost

RefDebit Credit

Balance

Debit Credit

Jan 15 G1 $2,000 $2,000

Feb 15 Correcting Entry

G2 $1,500 $3,500

Try it yourselves…

Problem 7.3 7.3 in your workbook & textbook

Check answers with me, then move on to Problem 7.4 and 7.9 7.4 and 7.9 in your workbook

Problem 7.3 Solution

Date DescriptionPost

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

Date DescriptionPost

RefDebit Credit

Balance

Debit Credit

May 1 Balance $3,000

10 G6 $1,500 $4,500

20Correcting

EntryG6 $1,500 $3,000

Account Name: Office Equipment

Date DescriptionPost

RefDebit Credit

Balance

Debit Credit

May 1 Balance $700

20Correcting

EntryG6 $1,500 $2,200