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Martin Quinn Notes

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IBAT College

The document discusses the trial balance, which is a list of ledger account balances that is prepared after all accounting entries for a period have been recorded. It serves to check that the total debits equal total credits, ensuring the double entry system was used correctly. If the trial balance does not balance, errors must exist in the accounting records and need to be identified and corrected. While a trial balance checks for errors in posting or arithmetic, it will not detect more complex errors or those that cancel each other out.

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The Trial Balance
The trial balance Total debit entries = Total credit entries If the the double entry system has been applied correctly……  For each debit entry there is a credit entry.  For each credit entry there is a debit entry. 2 Martin Quinn, 2009
Purpose of the trial balance ï‚— A trial balance checks that double entry system works ï‚— Used as basis for preparation of final accounts 3 Martin Quinn, 2009
Trial balance ï‚— Once all entries have been made correctly, total debits should equal total credits ï‚— A list of the balances on all ledger accounts in column format is called a trial balance ï‚— A trial balance checks that the double entry system is working correctly and allows the preparation of final accounts 4 Martin Quinn, 2009
Example Trial balance Dr Cr Bank 1,000 Creditors 3,000 Fixed Assets 3,000 Stocks 1,200 Capital 1,200 5,200 5,200 Martin Quinn/Wood/Sangster: Business Accounting 1, 10e, © Pearson Education Limited 2005
Should the TB always balance? ï‚— Yes ï‚— If not, need to check accounts/balances for errors 6 Martin Quinn, 2009
Trial Balance ï‚— It does not balance ??? ï‚— Arithmetic errors ï‚— Extraction errors ï‚— Posting errors ï‚— one sided entry ï‚— entered twice on same side ï‚— transposed or incorrect figures 7 Martin Quinn, 2009
Trial Balance  Will not show  Errors of omission – transaction left out completely  Errors of commission – correct amounts, wrong account(s)  Errors of principle – e.g. posted a capital expense as revenue expense  Compensating errors – errors which cancel each other out  Reversal of entries – wrong sides of each account used 8 Martin Quinn, 2009

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Martin Quinn Notes

  • 2. The trial balance Total debit entries = Total credit entries If the the double entry system has been applied correctly…… ï‚— For each debit entry there is a credit entry. ï‚— For each credit entry there is a debit entry. 2 Martin Quinn, 2009
  • 3. Purpose of the trial balance ï‚— A trial balance checks that double entry system works ï‚— Used as basis for preparation of final accounts 3 Martin Quinn, 2009
  • 4. Trial balance ï‚— Once all entries have been made correctly, total debits should equal total credits ï‚— A list of the balances on all ledger accounts in column format is called a trial balance ï‚— A trial balance checks that the double entry system is working correctly and allows the preparation of final accounts 4 Martin Quinn, 2009
  • 5. Example Trial balance Dr Cr Bank 1,000 Creditors 3,000 Fixed Assets 3,000 Stocks 1,200 Capital 1,200 5,200 5,200 Martin Quinn/Wood/Sangster: Business Accounting 1, 10e, © Pearson Education Limited 2005
  • 6. Should the TB always balance? ï‚— Yes ï‚— If not, need to check accounts/balances for errors 6 Martin Quinn, 2009
  • 7. Trial Balance ï‚— It does not balance ??? ï‚— Arithmetic errors ï‚— Extraction errors ï‚— Posting errors ï‚— one sided entry ï‚— entered twice on same side ï‚— transposed or incorrect figures 7 Martin Quinn, 2009
  • 8. Trial Balance ï‚— Will not show ï‚— Errors of omission – transaction left out completely ï‚— Errors of commission – correct amounts, wrong account(s) ï‚— Errors of principle – e.g. posted a capital expense as revenue expense ï‚— Compensating errors – errors which cancel each other out ï‚— Reversal of entries – wrong sides of each account used 8 Martin Quinn, 2009