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?
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
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
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 …….
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!
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?????
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?
Mistakes Will Happen…
 In accounting, if a mistake is made…there is
only 1 single rule that applies….
Making Correcting Entries
Depends…
 When the error is made
 Where the error is made
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)
What is wrong with the following
example (error type 1)?
How would you correct it?
If you discover an error before
posting!
Example: On January 1, Mrs. Nemec
invested $52,000 to open up a business
called: “Nemec’s Accountants”
Date
Description
Jan 1 Cash in Bank
Mrs. Nemec, Capital
Post
Ref
Debit
Credit
$25,000
$25,000
Correcting in the Ledger, if
Journal Entry is correct
Date
Jan
Description
1
Post
Ref
Balance
Debit
Credit
Debit
G1
$25,000
$25,000
Credit
A Correcting “Entry” is made
when…..
The journal entry has already been
posted, however the journal entry is
incorrect
Imagine the Following
Example:
 On February 15, Nemec’s Accountants paid
the monthly rent of $1,500
Rent Expense
Debit
$1,500
Credit
Cash in Bank
Debit
Credit
$1,500
However the Journal Entry that
was recorded is…
Date
Description
Feb 15 Advertising Expense
Cash in Bank
Post
Ref
Debit
Credit
405 $1,500
101
$1,500
Acct Name: Advertising Expense
Date
Description
Post
Ref
Jan
1
G1
Feb
15
G2
Balance
Debit
Credit
Debit
$20,000
$20,000
$1,500
$21,500
Credit
Acct Name: Rent Expense
Date
Jan
15
Description
Balance
Post
Ref
Debit
G1
$2,000
Credit
Debit
$2,000
Credit
Make a Correcting “Journal”
Entry First
Date
Description
Feb 15 Rent Expense
Advertising Exp.
Post
Ref
Debit
Credit
401 $1,500
405
$1,500
Then Post your Correcting
“Journal” Entries
Acct Name: Advertising Expense
Date
Description
Post
Ref
Jan
1
G1
Feb
15
G2
Feb
15
Correcting G2
Entry
Balance
Debit
Credit
Debit
$20,000
$20,000
$1,500
$21,500
$1,500
$20,000
Credit
Acct Name: Rent Expense
Date
Jan
15
Feb
15
Description
Balance
Post
Ref
Debit
G1
$2,000
$2,000
$1,500
$3,500
Correcting G2
Entry
Credit
Debit
Credit
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
Problem 7.3 Solution
Date
May
10
Description
Post
Ref
Computer Equipment
120
Cash in Bank
101
Debit
Credit
$1,500
$1,500
Check 8099
20
Office Equipment
Computer Equipment
Memo 47
115
120
$1,500
$1,500
Account Name: Computer
Equipment
Date
May
1
Description
Post
Ref
Balance

10
20
G6
Correcting
Entry
G6
Balance
Debit
Credit
Debit
$3,000
$1,500
$4,500
$1,500
$3,000
Credit
Account Name: Office
Equipment
Date
May
1
20
Description
Post
Ref
Balance

Correcting
G6
Entry
Balance
Debit
Credit
Debit
$700
$1,500
$2,200
Credit