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UNIT-4 Acct - 103

UNIT-4 Acct - 103. College of Business Administration, Al-Kharj Salman Bin Abdulaziz University KINGDOM OF SAUDI ARABIA. Syllabus Trial Balance: Meaning, Importance and Preparation of Trial Balance. MEANING & PURPOSE TRIAL BALANCE ???.

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UNIT-4 Acct - 103

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  1. UNIT-4Acct - 103 College of Business Administration, Al-Kharj Salman Bin Abdulaziz University KINGDOM OF SAUDI ARABIA

  2. Syllabus • Trial Balance: Meaning, Importance and Preparation of Trial Balance. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

  3. MEANING & PURPOSE TRIAL BALANCE ??? The trialbalance is the statement of Ledger account balance within a ledger of a business at a particular instance. >> Trial ?? Meaning = The act of testing something / Trying something to find about it >> Balance?? Meaning = To lag or linger behind Importance; The Trial Balance is prepare to check the mathematical / Arithmetical accuracy of accounts. This is the only purpose of Trial Balance.

  4. THE TRIAL BALANCE • The act of totaling debit balances and credit balances to confirm that totaldebits equal total credits. • The trial balance is a list of accounts and their balances at a given time. • The primary purpose of a trial balance is to prove debits = credits after posting. • If debits and credits do not agree, the trial balance can be used to uncover errors in journalizing and posting.

  5. THE TRIAL BALANCE The Steps in preparing the Trial Balance are: • List the account titles and balances • Total the debit and credit columns • Prove the equalyof the two columns Key to preparing a trial balance is making sure that all the account balances are listed under the correct column.  The appropriate columns are as follows: Assets = Debit balanceLiabilities = Credit balanceExpenses = Debit BalanceEquity = Credit balanceRevenue = Credit balance

  6. A TRIAL BALANCE The total debits must equal the total credits.

  7. LIMITATIONS OF A TRIAL BALANCE • A trial balance does not prove all transactions have been recorded or the ledger is correct. • Numerous errors may exist even though the trial balance columns agree. For example, the trial balance may balance even when: • a transaction is not journalized • a correct journal entry is not posted • a journal entry is posted twice • incorrect accounts used in journalizing or posting • offsetting errors are made in recording

  8. Practical Problems Problem: Saif opened the Campus Laundromat on September 1, 2008. During the first month of operations the following occurred. Sept. 1 Invested SR.20,000 cash in the business. 2 Paid SR.1,000 cash for store rent for September. 3 Purchased washers and dryers for SR.25,000, paying SR.10,000 in cash and signing SR.15,000, 6-month, 12% note payable. 4 Paid in cash of SR.1,200 for a one-year accident insurance policy in advance. 10 Received a bill from the Daily News for advertising the opening of the Laundromat SR.200. 20 Withdrew SR.700 cash for personal use. Determined that cash receipts for laundry services for the month were SR.6,200. Instructions (a) Journalize the September transactions. (Use J1 for the journal page number.) (b) Open ledger accounts and post the September transactions. (c) Prepare a trial balance at September 30, 2008.

  9. General Journal

  10. cash Prepaid Insurance Saif Capital Prepaid Insurance Saif Drawing Laundry Equipment Service Revenue

  11. Advertising Expenses Notes Payable CAMPUS LAUNDROMAT Trial Balance September 30, 2008 Rent Expenses

  12. Date Explanation Re f . Debit Credit Balance 2008 Oct. 1 J1 10,000 10,000 2 J 1 1,200 11,200 3 J 1 10,300 900 4 J 1 600 9,700 20 J1 500 9,200 26 J1 4,000 5,200 10,000 15,200 3 1 J1 Problem: From the following ledger balances of Pioneer Advertising Agency Prepare a Trial Balance as on October 31 2009 AccountsPayable Cash Unearned Revenue Capital Service Revenue Drawing Salaries Expenses

  13. RentExpense AdvertisingSupplies Prepaid Insurance OfficeEquipment Notes Payable

  14. Solution: Pioneer Advertising Agency Trial Balance October 31,2009

  15. At December 31, 2008, the unadjusted trial balance of Kari Thresher Company shows the following balances for selected accounts: Supplies SR. 8,500 Prepaid Insurance 12,000 Equipment 40,000 Accumulated Depreciation 16,000 Unearned Fees 15,000 Notes Payable 50,000 Fees Earned 40,000 Instructions Prepare the adjusting entries for the year ending December 31, 2008.

  16. Date Account Title Debit Credit 2008 Dec. 31 Supplies Expense 5,500 Supplies 5,500 (SR.8,500 - SR.3,000) 31 Insurance Expense 6,000 Prepaid Insurance 6,000 (SR.12,000 x 6/12) 31 Depreciation Expense 8,000 Accumulated Depreciation 8,000 31 Unearned Fees 12,000 Fees Earned 12,000 31 Interest Expense 2,500 Interest Payable 2,500 (SR.50,000 x 10% x 6/12) 31 Accounts Receivable 3,500 Fees Earned 3,500 31 Salaries Expense 2,500 Salaries Payable 2,500 General Journal

  17. Example Trial Balance: Example Trial Balance

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