T-Account and Trial Balance Discussion

T-Account and Trial Balance

Last 26th of October, Sir Randy taught us how to do the T-Account which serves as our general leger for the transactions. We had our task sheet #1 after the discussion. We prepared a ledger and a trial balance referring to our previous performance task.

According WIN Ballada (2013),

The Account

The basic summary device of accounting is the account. A separate account is maintained for each element that appears in the balance sheet (assets, liabilities and equity) and in the income statement (income and expenses). Thus, an account may be defined as a detailed record of the increases, decreases and balance of each element that appears in an entity’s financial statements. The simplest form of the account is known as “T” account because of its similarity to the letter “T”.

1. The final account will be double ruled.

2. The date will be enclosed in the parenthesis.

Trial Balance

The trial balance is a list of all accounts with their respective debit or credit balances. It is prepared to verify the equality of debits and credits in the ledger at the end of each accounting period or at any time the postings are updated.

1. List the account titles in numerical order.

2. Obtain the account balance of each account from the ledger and enter the debit balances in the debit column and the credit balances in the credit column.

3. Add the debit and credit columns.

4. Compare the totals.

The trial balance is a control device that helps minimize accounting errors. When the totals are equal, the trial balance is in balance. This equality provides an interim proof of the accuracy of the records but it does not signify the absence of the errors.

Locating errors

An inequality in the totals of the debits and credits would automatically signal the presence of an error.

1. Error in posting a transaction in the ledger.

2. An erroneous amount was posted in the account

3. A debit entry was posted as credit or vice versa

4. A debit or credit posting was omitted

5. Error in determining the account balances.

6. A balance was incorrectly computed or was entered in the wrong balance column.

7. Error in preparing the trial balance.

8. One of the columns of the trial balance was incorrectly added.

9. The amount of an account balance was incorrectly recorded on the trial balance.

10. A debit balance was recorded on the trial balance as a credit or vice versa, or a balance was omitted entirely.

1. Freight in (asset) and interest income should be written in owner’s equity.

2. Freight out included in the operating expenses

RECTIFYING ERRORS IN TRIAL BALANCE

1. Prove the addition of the trial balance columns by adding these columns in the opposite directions.

2. Transposition - Reversing the orders of numbers if the discrepancy is divisible by 9, error or a slide (moving of the decimal point)

3. Compare the accounts and amounts in the trial balance with that in the ledger. Be certain that no account is omitted.

4. Recompute the balance of each ledger account.

5. Trace all postings from the journal to the ledger accounts.

Reference:

Ballada, W. (2013). Basic Accounting. DomDane Publishers and Made Easy Books.