The Trial Balance

Last Week

• We went through– Debits and Credits

• Talked about the steps in recording transactions– Recognize the MIN two accounts affected– Do they go up or down?– By how much?– Do we debit or credit?

• Opening the Ledger

Calculating New Balances in the Accounts

• At any given time, an accountant needs to know how much money is in each account– Especially after many transactions have taken

place

• Example: – Yesterday’s homework – your cash account was

touched several times

Calculating New Balances in the Accounts

• For any given account – when we are done with transactions we will:– Add the Debit side– Add the Credit side– Subtract the smaller amount from the larger– Place the answer on the larger side of the account

Calculating New Balances in the Accounts

Cash

$500$2500

$200$45

$2700 $545

BALANCE: $2155

Trial Balance

• In order to know if the account has recorded all the transactions correctly– We must know if debits = credits

• Trial Balance– A list of the ledger account balances. (T-Accounts)– The total of the debit balances should equal the

total of the credit balances. – Balance indicates mathematical accuracy

Trial Balance

• The Trial Balance is a financial statement– Therefore, we need to prepare it in a formal manner– Title

• Similar three lines to B/S & I/S• WHO? PT’s Pizza• WHAT? Trial Balance• WHEN? December 31, 2011

– Accounts are listed in the order they appear in the ledger• Assets, Liabilities, Owner’s Equity, Revenue & Expenses• Usually the same order as they would appear on the B/S and

I/S

Trial Balance

Cash

$25000

$300

$3500

$2,100

BALANCE: $26,300

BALANCED!!

Limitations of the Trial Balance

• Will not find an error if the wrong account was chosen– Example: Debit furniture rather than equipment

• Will not find if the account mixed up debits and credits for one account– Example: Paid money owing $500• Debit Cash $500 & Credit A/P $500

Preparing the New Balance Sheet

• After a Trial Balance is recorded & the accountant is confident in their transaction records– Post the new totals to a balance sheet

Homework

• Page 57-58 in textbook– Q #11, 12, 13