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 creditsJournalize 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 BalancesStep 2 ADD ALL Credit BalancesStep 3 COMPARE THE TWO TOTALSDO THEY EQUAL?????

This is called.PROVING THE LEDGER!

Try it yourselves.Problem 7-6Step 1 ADD ALL Debit BalancesStep 2 ADD ALL Credit BalancesStep 3 COMPARE THE TWO TOTALSDO THEY EQUAL?????

Correcting EntriesTo 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 HappenIn accounting, if a mistake is madethere is only 1 single rule that applies.

Making Correcting Entries DependsWhen the error is made

Where the error is made

3 Types of Errors you will SeeAn 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: Nemecs Accountants

DateDescriptionPost RefDebit CreditJan1Cash in Bank$25,000 Mrs. Nemec, Capital$25,000

Correcting in the Ledger, if Journal Entry is correct

DateDescriptionPost RefDebitCreditBalanceDebit CreditJan1G1$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, Nemecs Accountants paid the monthly rent of $1,500 Rent ExpenseCash in BankDebitCreditDebitCredit$1,500$1,500

However the Journal Entry that was recorded is

DateDescriptionPost RefDebit CreditFeb15Advertising Expense405$1,500 Cash in Bank101$1,500

Acct Name: Advertising Expense

DateDescriptionPost RefDebitCreditBalanceDebit CreditJan1G1$20,000$20,000Feb15G2$1,500$21,500

Acct Name: Rent Expense

DateDescriptionPost RefDebitCreditBalanceDebit CreditJan15G1$2,000$2,000

Make a Correcting Journal Entry First

DateDescriptionPost RefDebit CreditFeb15Rent Expense401$1,500 Advertising Exp.405$1,500

Then Post your Correcting Journal Entries

Acct Name: Advertising Expense

DateDescriptionPost RefDebitCreditBalanceDebit CreditJan1G1$20,000$20,000Feb15G2$1,500$21,500Feb15Correcting EntryG2$1,500$20,000

Acct Name: Rent Expense

DateDescriptionPost RefDebitCreditBalanceDebit CreditJan15G1$2,000$2,000Feb15Correcting EntryG2$1,500$3,500

Try it yourselvesProblem 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

DateDescriptionPost RefDebit CreditMay10Computer Equipment120$1,500 Cash in Bank101$1,500 Check 809920Office Equipment115$1,500 Computer Equipment120$1,500 Memo 47

Account Name: Computer Equipment

DateDescriptionPost RefDebitCreditBalanceDebit CreditMay1Balance $3,00010G6$1,500$4,50020Correcting EntryG6$1,500$3,000

Account Name: Office Equipment

DateDescriptionPost RefDebitCreditBalanceDebit CreditMay1Balance $70020Correcting EntryG6$1,500$2,200

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