Week 3 lecture notes - trial balance PDF

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Financial accounting lecture 3 The Trial balances

Trial Balance   

For every amount debited, an equal amount must be credited This means that the totals of the debits and credits in the ledger accounts (T-accounts) must be equal To test this, the accountant periodically prepares a trial balance

Balancing of  

For every amount debited, an equal amount must be credited This means that the totals of the debits and credits in the ledger accounts (T-accounts) must be equal o To test this, the accountant periodically prepares a trial balance

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Find the side which has the highest total: o For asset / expense / drawings accounts = the debit side o For liabilities / income / capital = the credit side o Bank account can be either side Record the highest total twice: o Once on the debit side; and o Once on the credit side Calculate / carry down the (missing) balancing figure (c/d) Bring down the balancing figure (b/d)

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bank: credit does not= 6,100 so need to balance carried down to 1,580 beginning of next month swap to debit and put opening balance to start next period- balance brought down

capital: total on both sides need to be 5,00, debit needs 5,000, so label 31st of the month as ending balance carried down on debit side on 1st of next month 5,000 balance brought down as opening balance

trade creditors: no outstanding left to pay, both equal 1750, no balance to calculate

 List each account that has a balance:  Debit balances in left hand column  Credit balances in the right-hand column  Accounts can be listed in the order in which they appear in the ledger  Add up each column Compare the totals of the columns

Debits= 6,840 Credits= 6,840 Debits= credits

A trial balance will not show the following errors:     

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Omission – transaction not recorded at all Commission – posting a debit or credit to the correct side of the ledger, but to a wrong account Reversal of entry – swapping the debits and credits around for a transaction Principle – item entered into wrong class of account Original Entry – the original figure is wrong but posted correctly

Check your additions Errors can be detected by computing the diference between the total debits and credits on the trial balance o Search for a missing account o Divide the diference by 2  A debit treated as a credit or vice versa, doubles the amount of the error o Divide the diference by 9  If it is divisible by 9, the error is likely to be a transposition error

Suspense account 

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A suspense account is a temporary account which is opened because either: o The bookkeeper does not know where to post one side of a transaction  E.g. a cash payment is credited to cash but the bookkeeper does not know what the payment is for and so will not know which account to debit A trial balance does not balance (due to posting or addition errors) When the error has been located, it can be corrected by a journal entry and the suspense balance is cleared A suspense account posting is always temporary...