Accounting for Beginners: A Simple and Updated Guide to Learning Basic Accounting Concepts and Principles Quickly and Easily, Including Financial Statements and Adjusting Entries for Small Businesses by Ruell Warren Piper

Author:Ruell, Warren Piper [Ruell, Warren Piper]
Language: eng
Format: epub
Published: 2019-11-28T16:00:00+00:00

Asset Accounts

101

Cash

7,500

105

Accounts Receivable

2,500

120

Product Inventory

45,000

103

Supplies Inventory

12,500

Liability Accounts

200

Accounts Payable

1,200

205

Payroll Payable

5,250

Equity Accounts

301

Owner’s capital

20,000

320

Retained earnings

13,000

Revenue Accounts

405

Sales Revenue

46,000

410

Service Sales Revenue

7,550

Expense Accounts

505

Cost of Goods Sold

23,000

510

2,500

Totals

93,000

93,000

Using the trial balance to check for errors

In this example, the closing balances of all accounts are equal. Notice that the closing accounts of the accounts in bold are transferred directly from the closing balances in the sample ledger entries in the previous section. The closing balances will reflect the difference to the opening balance resulting from the sum of all debits and credits posted to that account, so there is no reason for the accountant to add all the debits and credits individually.

If the totals at the bottom of the debt and credit columns do not match, there may be several reasons, including:

● An account balance may appear on the trial balance worksheet as a debit balance when it should be a credit balance (or vice-versa).

● The account balances may be incorrect as a result of a transposition error in one or more of the account balances figures.

● A debit or credit balance from one single account may have been omitted .

However, the trial balance may not detect certain types of accounting errors, such as:

● Incorrect values for debit or credit balances that do not result in unequal debt and credit balance totals.

● Transactions that were not entered into the journal.

● A transaction may have been entered as a credit, when it should have been entered as a debit.

● A transaction may have been posted to the wrong type of account.

● Two errors that offset each other may escape detection using only the trial balance worksheet.

A company’s annual report and financial statements will be released to shareholders, tax authorities, financial regulators, bond and credit rating forms, and lenders. These statements may also require passage of an examination by auditors. As a result, accuracy in reporting accounting figures is vitally important to the ongoing success of a company’s operations. Thus, regardless of whether the accounting error is purely mathematical or the result of more serious or complicated problems during the accounting cycle, creating the trial balance is a very important part of accurate accounting.

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