# File - BAF3M Fundamentals of Accounting

Review….
Types of Accounts
Beginning Value
Increases
Decreases
ASSETS
DR
DR
CR
LIABILITIES &amp;
OWNER'S EQUITY
CR
CR
DR
• Page 96, Exercises 1,2,3
• Page 107, ‘Exercise’ 1 A.
– (Use a T Account Ledger)
– Do the transactions for this ‘new’ business –
what will the opening balances be for each
account?
– Calculate account totals when complete.
Page 96, Exercises 1 (A,B)
• A.
– A debit balance in an A/R account means that
person owes us.
• B.
– A credit balance in an A/P account means we
owe that person money.
2.
• A.
– Bank account is usually a DR balance.
– A/R account is usually a DR balance.
– A/P account is usually a CR balance.
• B.
– Overdraft on a bank account can cause this.
– Overpayment by a creditor. (\$ paid to us.)
– Overpayment to a debtor. (We paid more than we
owed.)
3.
• a. the left side of an account is a DR
• b. the balance of an A/R is a DR.
• c. The balance of a supplier’s account (someone
who we buy from) is a CR.
• d. A decrease in a liability is a DR.
• e. An exceptional (unusual) bank account
balance is a CR.
• f. The balance of an equipment (asset) account
is a DR.
• g. The right side of an account is a CR
• h. The balance of a Bank Loan account is a CR
•
•
•
•
•
•
•
•
•
•
i. An exceptional balance on an A/P is a DR.
j. The larger side of a liability account is a CR.
k. A creditor’s account is a DR.
l. A customer’s account (who will also owe us money) is
a DR.
m. To increase an asset, we use a DR.
n. A debtor’s account is a CR.
o. The effect on accounts receivable when we sell on
account (increases it) is a DR.
p. The effects on accounts payable when we buy on
account is a CR.
q. The effect on A/R when we have a receipt (we make a
sale) on account is a DR.
r. The effect on A/P when we purchase on account is a
CR.
As s et s
1A.
ban k
Liabil it ies &amp; Ow n er 's Eq u it y
The Trial Balance
• To set up our ledger, we use information
from the balance sheet.
• Changes caused by transactions are
recorded in the ledger. (T Accounts)
• Periodically, it is necessary to check the
accuracy of the ledger.
• This is done with a ‘Trial Balance’
‘Taking off’ a trial balance
• Making a trial balance is called ‘taking off’
a trial balance.
• The trial balance is simply a listing of the
accounts and their balances in the ledger.
• If all the debit balances = all the credit
balances, the ledger is said to be in
balance. (Otherwise it is out of balance.)
What does a trial balance look like?
Pacific Trucking
Trial Balance
July 2, 20-Accounts
Bank
A/R - D. Johnston
A/R - J. Seinfeld
Supplies
Trucks
Equipment
Bank Loan
A/P - J. Dimagio
A/P - M. Monroe
B. Johson, Capital
DEBITS
CREDITS
215
150
85
350
63000
22180
85980
Ac c o u n t bal an c e
in c o r r ec t c o l u mn s !
Ac c o u n t s l is t ed in
l edger o r der !
18000
6516
4146
57318
85980
T o t al s mu s t agr ee!
Taking off a trial balance…
• Step 1
– List all the accounts and their balances
• Step 2
– Place debit balances in debit column and credit balances in
credit column
• Step 3
– Add up the two columns
• Step 4
– See if your two columns are the same.
• Step 5
– Write a heading at the top.
• Title of the document (Trial Balance)
• Date prepared
Balance
• It is important to have your ledger in
balance.
• If it is not in balance, your work is not
accurate.
• A ledger out of balance is a certain sign at
least one error has been made in the
accounts.
• A good accountant does not rest until all
errors are found and corrected!
Finding Errors
• Re-add the trial balance columns
• Check that numbers have been
transferred from the ledger to the trial
balance correctly.
• Recalculate the account balances.
• Check that there is a balanced accounting
entry for each transaction! (DR = CR ?)
Homework…
• Page 102, Exercise 2