Accounting Transactions Quiz

Trial Balance

• A trial balance is a list of all accounts and their balances at a given time, listed in order as they appear in the general ledger.
• It proves the mathematical equality of debits and credits after posting.
• Steps to prepare a trial balance:
  • List account numbers, titles, and balances.
  • Total debit and credit columns.
  • Verify equality of debit and credit columns.

Errors in Trial Balance

• A trial balance will detect:
  • Addition error in ledger account or trial balance total.
  • Posting wrong amount to account.
  • Debits posted as credits and vice versa.
  • Omitting an account.
• A trial balance will not detect:
  • A transaction not journalized.
  • A correct journal entry not posted.
  • A journal entry posted twice.
  • Incorrect accounts used in journalizing or posting.
  • Offsetting errors made in recording the amount of a transaction.

Locating Errors

• Check difference between totals – transposition error if difference is divisible by 9.
• Add columns again.
• Check account balances in ledger.
• Compare balances listed in trial balance with ledger accounts.
• Verify that debits equal credits for each journal entry.
• Trace entries from journal to ledger accounts.

Recording Accounting Transactions

• A transaction is an exchange of something of value between two or more external entities.
• Transactions are recorded in accounts, which are individual records of increases and decreases in specific asset, liability, and equity items.

Accounts and the Chart of Accounts

• An account has a normal balance that is either a debit or credit.
• Collectively, accounts form the general ledger.
• The chart of accounts is a list of all general ledger account numbers and names, with related accounts grouped and in the order they appear in the financial statements.

Debit and Credit Procedures

• Debit and credit procedures for assets and liabilities:
  • Increase in asset: debit.
  • Decrease in asset: credit.
  • Increase in liability: credit.
  • Decrease in liability: debit.
• Debit and credit procedures for equity:
  • Increase in owner's equity: credit.
  • Decrease in owner's equity: debit.
  • Drawings increase: debit.
  • Drawings decrease: credit.
• Debit and credit procedures for revenue and expenses:
  • Increase in revenue: credit.
  • Decrease in revenue: debit.
  • Increase in expense: debit.
  • Decrease in expense: credit.

The Journal and Posting

• The journal is a record of all transactions in chronological order.
• Posting is the procedure of transferring journal entries to ledger accounts.
• Steps in the posting process:
  • Enter date in account to be debited.
  • Enter name of ledger account to be credited.
  • Enter amount to be debited.
  • Enter account number.
• The general ledger contains all asset, liability, and equity (including revenue and expense) accounts.