Balancing Accounts and the Trial Balance

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Balancing Accounts and the Trial Balance

• Chapter 4

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Balancing double entry accounts
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Step 1 total both sides
DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR
1-May   1,500 17-May   250
1-May Bank a/c 1,500 17-May ABC Ltd a/c 250
15-May ABC Ltd a/c 2,250      
           
           
           
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Step 2 get the balancing figure by finding the
difference between the two totals

• Debit side 3,750 less credit side 250 3,500.
• This is the balancing figure
• The balance goes on the lower side, in this case
  the credit side

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Step 3 enter the balance on the lower side
DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR
1-May   1,500 17-May   250
1-May Bank a/c 1,500 17-May ABC Ltd a/c 250
15-May ABC Ltd a/c 2,250 30-May Balance c/d 3,500
 
 
           
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Step 4 total both sides
DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR
1-May   1,500 17-May   250
1-May Bank a/c 1,500 17-May ABC Ltd a/c 250
15-May ABC Ltd a/c 2,250 30-May Balance c/d 3,500
           
    3,750   3,750
           
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Step 5 bring the balance down below the total on
opposite side
DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR
1-May   1,500 17-May   250
1-May Bank a/c 1,500 17-May ABC Ltd a/c 250
15-May ABC Ltd a/c 2,250 30-May Balance c/d 3,500
           
    3,750      3,750 
1-June Balance b/d 3,500      
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The balanced account
DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR DR Furniture Account CR
1-May   1,500 17-May   250
1-May Bank a/c 1,500 17-May ABC Ltd a/c 250
15-May ABC Ltd a/c 2,250 30-May Balance c/d 3,500
           
    3,750      3,750 
30-May Balance b/d 3,500      
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The Trial Balance
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The Trial Balance

• For each debit entry there is a credit entry
• For each credit entry there is a debit entry
• If all the items are recorded in all the accounts
  the total of the debit entries should equal the
  total of the credit entries.

Total debit balances Total credit balances
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The Trial Balance
Debit Credit
Sales Sales returns Purchases Purchases returns Rent Rates Advertising Light and Heat Insurance Wages and salaries Motor vehicles Premises Furniture and equipment Debtors A. Dunne J. O'Donoghue P. O'Meara M. McDonald B. Gibson Bank Overdraft Creditors B. Winne L. Lamb C. Gardge Loans Capital 10,000 50,000 7,000 2,000 3,000 4,000 10,000 15,000 25,000 250,000 40,000 2,500 1,500 3,000 4,000 3,000 _______ 100,000 5,000 23,000 10,000 5,000 3,000 150,000 134,000
430,000 430,000

• A trial balance is a list of balances only,
  arranged according to whether they are debit
  balances or credit balances.

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Balance the following accounts
Capital Account Capital Account Capital Account Capital Account Capital Account Capital Account   Rent Account Rent Account Rent Account Rent Account Rent Account Rent Account
      25 Jan Bank a/c 50,000   25 Jan Bank a/c 3,000      
                       
                         
Bank Account Bank Account Bank Account Bank Account Bank Account Bank Account   Creditors Account (Ace Interiors) Creditors Account (Ace Interiors) Creditors Account (Ace Interiors) Creditors Account (Ace Interiors) Creditors Account (Ace Interiors) Creditors Account (Ace Interiors)
25 Jan Capital a/c 50,000 25 Jan Rent a/c 3,000   30 Jan Bank 5,000 25Jan Shop Fittings a/c 12,000
      26 Jan Equipment a/c 4,500              
      30 Jan Ace motors a/c 5,000              
                         
              Creditors Account (ABC Limited) Creditors Account (ABC Limited) Creditors Account (ABC Limited) Creditors Account (ABC Limited) Creditors Account (ABC Limited) Creditors Account (ABC Limited)
Equipment Account Equipment Account Equipment Account Equipment Account Equipment Account Equipment Account         29 Jan Equipment a/c 3,500
26 Jan Bank a/c 4,500                    
29 Jan ABC Ltd a/c 3,500                    
                         
                         
Shop Fittings Account Shop Fittings Account Shop Fittings Account Shop Fittings Account Shop Fittings Account Shop Fittings Account              
25 Jan Ace Interiors a/c 12,000                    
                         
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Balanced Accounts
Capital Account Capital Account Capital Account Capital Account Capital Account Capital Account   Rent Payable Account Rent Payable Account Rent Payable Account Rent Payable Account Rent Payable Account Rent Payable Account
31 Balance c/d 50,000 25 Bank a/c 50,000   25 Bank a/c 3,000 31 Balance c/d 3,000
      1/2 Balance b/d 50,000   1/2 Balance b/d 3,000      
                         
Bank Account Bank Account Bank Account Bank Account Bank Account Bank Account   Creditors Account (Ace Interiors) Creditors Account (Ace Interiors) Creditors Account (Ace Interiors) Creditors Account (Ace Interiors) Creditors Account (Ace Interiors) Creditors Account (Ace Interiors)
25 Capital a/c 50,000 25 Rent a/c 3,000   30 Bank 5,000 25 Shop fittings a/c 12,000
      26 Equipment a/c 4,500              
      30 Ace a/c 5,000   31 Balance c/d 7,000      
      31 Balance c/d 37,500       12,000     12,000
    50,000     50,000         1 Balance b/d 7,000
1/2 Balance b/d 37,500                    
              Creditors Account (ABC Limited) Creditors Account (ABC Limited) Creditors Account (ABC Limited) Creditors Account (ABC Limited) Creditors Account (ABC Limited) Creditors Account (ABC Limited)
Equipment Account Equipment Account Equipment Account Equipment Account Equipment Account Equipment Account   31 Balance c/d 3,500 29 Equipment a/c 3,500
26 Bank a/c 4,500               1 Balance b/d 3,500
29 ABC Ltd a/c 3,500 31 Balance c/d 8000              
    8,000     8000              
1/2 Balance b/d 8,000                    
                       
Shop Fittings Account Shop Fittings Account Shop Fittings Account Shop Fittings Account Shop Fittings Account Shop Fittings Account              
25 Ace a/c 12,000 31 Balance c/d 12,000              
1/2 Balance b/d 12,000                    
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The Trial Balance
Trial Balance at 31st January Trial Balance at 31st January    
  Debit   Credit
Capital     50,000
Bank 37,500    
Equipment 8,000    
Shop Fittings Accounts 12,000    
Rent Account 3,000    
Creditors - Ace Interiors     7,000
Creditors - ABC Limited     3,500
  60,500   60,500
       
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The Trial Balance and Errors

• There are two types of errors
• Errors which result in a trial balance that
  doesnt balance
• Errors which dont affect the trial balance
  agreement

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Errors which result in a trial balance that
doesnt balance

• Addition errors
• Using one figure for the debit and a different
  figure for the credit entry
• (debit 360 and credit 36)
• Entering one side of the transaction only
• (only entering debit of 360 omitting the credit
  entry)

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Errors which dont affect the trial balance
agreement

• Errors of omission
• (Both debit and credit entries ignored)
• Errors of commission
• (Correct amount in wrong personal account)
• Errors of principle
• (Correct amount in wrong class of account)
• Compensating errors
• (Two compensating errors canceling each other)
• Errors of original entry
• (Incorrect amount posted to correct side of both
  accounts)
• Complete reversal of entries
• (Correct amount to correct accounts but both
  entries on incorrect side)