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Questions and Answers
What is the purpose of a trial balance?
What is the purpose of a trial balance?
Which of the following errors will a trial balance not detect?
Which of the following errors will a trial balance not detect?
How do you prepare a trial balance?
How do you prepare a trial balance?
Which type of error will a trial balance detect?
Which type of error will a trial balance detect?
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What is one common step in preparing a trial balance?
What is one common step in preparing a trial balance?
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Which error can occur if the difference between totals in a trial balance is divisible by 9?
Which error can occur if the difference between totals in a trial balance is divisible by 9?
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Study Notes
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.
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Description
Test your knowledge on recording transactions in an accounting system, accounts, debit and credit procedures, and the chart of accounts. Determine which scenarios constitute as transactions.
