section 3: preparing a trial balance
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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?. - PowerPoint PPT PresentationTRANSCRIPT
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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?
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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
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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
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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 …….
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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!
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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?????
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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?
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Mistakes Will Happen…
In accounting, if a mistake is made…there is only 1 single rule that applies….
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Making Correcting Entries Depends…
When the error is made
Where the error is made
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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)
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What is wrong with the following example (error type 1)?
How would you correct it?
If you discover an error before posting!
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Example: On January 1, Mrs. Nemec invested $52,000 to open up a business
called: “Nemec’s Accountants”
Date Description Post Ref Debit Credit
Jan 1 Cash in Bank $25,000
Mrs. Nemec, Capital $25,000
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Correcting in the Ledger, if Journal Entry is correct
Date DescriptionPost Ref
Debit Credit
Balance
Debit Credit
Jan 1 G1$25,000 $25,000
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A Correcting “Entry” is made when…..
The journal entry has already been posted, however the journal entry is
incorrect
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Imagine the Following Example:
On February 15, Nemec’s Accountants paid the monthly rent of $1,500
Rent Expense Cash in BankDebit Credit Debit Credit
$1,500 $1,500
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However the Journal Entry that was recorded is…
Date Description Post Ref Debit Credit
Feb 15 Advertising Expense 405 $1,500
Cash in Bank 101 $1,500
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Acct Name: Advertising Expense
Date DescriptionPost Ref
Debit Credit
Balance
Debit Credit
Jan 1 G1 $20,000 $20,000
Feb 15 G2 $1,500 $21,500
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Acct Name: Rent Expense
Date DescriptionPost Ref
Debit Credit
Balance
Debit Credit
Jan 15 G1 $2,000 $2,000
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Make a Correcting “Journal” Entry First
Date Description Post Ref Debit Credit
Feb 15 Rent Expense 401 $1,500
Advertising Exp. 405 $1,500
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Then Post your Correcting “Journal” Entries
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Acct Name: Advertising Expense
Date DescriptionPost Ref
Debit 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
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Acct Name: Rent Expense
Date DescriptionPost Ref
Debit Credit
Balance
Debit Credit
Jan 15 G1 $2,000 $2,000
Feb 15 Correcting Entry
G2 $1,500 $3,500
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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
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Problem 7.3 Solution
Date Description Post 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
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Account Name: Computer Equipment
Date DescriptionPost Ref
Debit Credit
Balance
Debit Credit
May 1 Balance $3,000
10 G6 $1,500 $4,500
20 Correcting Entry G6 $1,500 $3,000
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Account Name: Office Equipment
Date DescriptionPost Ref
Debit Credit
Balance
Debit Credit
May 1 Balance $700
20 Correcting Entry G6 $1,500 $2,200