Section 3: Preparing a Trial Balance

1. 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?

2. 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

3. 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

4. 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 …….

5. 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!

6. 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?????

7. 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?

8. Mistakes Will Happen… • In accounting, if a mistake is made…there is only 1 single rule that applies…. Never Ever!! Erase an Error!! Why??

9. Making Correcting Entries Depends… • When the error is made • Where the error is made &

10. 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)

11. What is wrong with the following example (error type 1)? How would you correct it? If you discover an error before posting!

12. Example: On January 1, Mrs. Nemec invested $52,000 to open up a business called: “Nemec’s Accountants” $52,000 $52,000

13. Correcting in the Ledger, if Journal Entry is correct $52,000 $52,000 Error Type #2

14. A Correcting “Entry” is made when….. The journal entry has already been posted, however the journal entry is incorrect

15. Imagine the Following Example: • On February 15, Nemec’s Accountants paid the monthly rent of $1,500 Cash in Bank Rent Expense Debit Credit Debit Credit $1,500 Is this correct? $1,500

16. However the Journal Entry that was recorded is… What is wrong here?

17. Acct Name: Advertising Expense What should this Balance Indicate?

18. Acct Name: Rent Expense What should this Balance Indicate?

19. Make a Correcting “Journal” Entry First

20. Then Post your Correcting “Journal” Entries

21. Acct Name: Advertising Expense Back to Normal

22. Acct Name: Rent Expense Back to Normal

23. Try it yourselves… • Problem 7.3 in your workbook & textbook • Check answers with me, then move on to Problem 7.4 and 7.9 in your workbook

24. Problem 7.3 Solution

25. Account Name: Computer Equipment

26. Account Name: Office Equipment