ACF110C2B: Financial Accounting Lecture 3

1
ACF110C2B Financial AccountingLecture 3

• Miss Syamarlah Rasaratnam

2
Nature of a Trial balance

• A trial balance is a list of the balances in the
  ledger at the end of an accounting period,
  divided between those accounts with debit balance
  and those with credit balance

3
Mr. BlueTrial Balance as at 31/12/02
4
Function of trial balance

• Arithmetic accuracy
• All debit balances All credit balances
• Preparation of final accounts

5
Key points

• Cash account always has debit balance
• Bank account -gt either debit or credit bal.
• Add all the trade debtors/creditors and list in
  Trial balance
• Undetected errors by Trial balance
• Wrong account
• Wrong amount

6
Types of errors that cause a trial balance to
disagree

• Arithmetic error incorrect addition
• Posting error
• Only one side of the ledger entered
• Entered twice on the same side
• Transposed figures (e.g 23 entered as 32)
• Extraction error
• Wrong side
• Wrong amount

7
Example

• Day 1
• Janice pays 10,000 into the business bank
  account
• Day 2
• She buys a second-hand car for 4,000. This
  vehicle will be used in the business.

8
Example

• Day 3
• She busy goods for 2,000
• Day 4
• She pays rent of 500
• Day 5
• She pays the telephone installation bill of 350

9
Example

• Day 6
• She sells goods for 3,500 and receives a cheque
  from customers
• Day 7
• She pays wages of 200 to her assistant
• Day 8
• She pays 600 for insurance

10
Example

• Day 9
• She pays 750 for advertising
• Day 10
• She pays herself 500

11
Example

• Cahill, Q4.7 (pg 40)
• Write up the following transactions in David
  Jensens nominal ledger for May 2004 and extract
  a trial balance as at 31 May 2004.
• 2004
• May 1 Started business with 20,000 capital

12
Example

• May 2 Credit purchases 11,500
• 5 Cash sales 1,800
• 6 Return of goods to suppliers 400
• 7 Credit purchase 1,900
• 10 Credit sales 3,900
• 12 Cash sales 2,100
• 21 Cash purchase of machinery 5,500

13
Example

• May 22 Credit sales 2,200
• 23 Goods returned by customer 1,400
• 28 Goods returned to supplier 300
• 29 Cheque payment to creditor 8,600
• 31 Purchases of computer on credit
• 2,700.

14
Example

• Dyson Question 3.13 (pg 68)
• The following transactions relates to Pats
  business for the month of December 2003
• 1/1/03 Started on business with 10,000
• in cash
• 2/12/03 Bought goods on credit from
• Grass 6,000
• Seed 7,000

15
Example

• 10/12/03 Sold goods on credit to
• Fog 3,000
• Mist 4,000
• 12/12/03 Returned goods to the suppliers
• Grass 1,000
• Seed 2,000

16
Example

• 15/12/03 Bought additional goods on credit
• from Grass for 3,000 and from
• seed for 4,000
• 20/12/03 Sold more goods on credit to
• Fog for 2,000 and Mist for 3,000
• 24/12/03 Paid office expenses of 5,000 in
• cash.

17
Example

• 29/12/03 Received 4,000 in cash from Fog and
  6,000 in cash from Mist.
• 31/12/03 Pat paid Grass and Seed 6,000
• and 8,000 respectively, in cash.

18
Example

• Required
• Enter the above transaction in Pats ledger a/c.
• Balance off the accounts as at 31 December 2003
• Bring down the balances as at 1 January 2003
• Compile a trial balance as at 31 December 2003.

19
Next week plan

• Monday class - Preparing Profit and Loss Account
  and Balance sheet
• Tuesday class test Preparing Trial Balance
• Tomorrow Class Test
• Ledger Entries see last weeks class examples