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2
TRANSFER BALANCES FROM THE LEDGER
Contents:
Conditions:
Assessment Method:
1. Written test
2. Practical exercises
3. Interview
One other important use of the trial balance is that it can determine
the arithmetic accuracy of the accounts. So if both columns of the
trial balance tally, we can be reasonably assured of the accuracy of
the accounts. It does not ensure that the accounts are free of all errors
but it can at least establish mathematical accuracy.
Liabilities
Income Accounts
Capital Account
Profits
Capital 70,000
Salaries 10,000
Purchases 80,000
Investments 7000
Sales 70,000
Patents 10,000
Furniture 8000
Contents:
Conditions:
Assessment Method:
1. Written test
2. Practical exercises
3. Interview
If the "debit DR" and "credit CR" balance totals do not match in the trial balance exercise, there is an
accounting error somewhere in the account balances. The firm will try to find the mistakes responsible
for the mismatch, and correct them, before publishing financial statements. During the trial balance
period, accountants will also search for and try to fix other kinds of accounting errors that the trial
balance does not reveal.
Any material errors in the account balances they do not find and fix before publishing financial
statements may result in an external auditor's opinion that is either "Qualified" or "Adverse."
A mismatch between debit and credit totals in the trial balance usually means that one or more
transaction postings from journal to ledger are either in error or missing. Accountants may ultimately
have to examine every debit-credit pair of journal entries to find the mistake.
There are, however, some well-known indicators for certain kinds of problems. These indicators help
reveal specific errors without having to resort to a complete transaction-by-transaction review. For
instance:
If an account balance incorrectly appears as debit balance when it should be a credit balance
(or the reverse), the difference between the debit total and credit total will be twice the value of
this balance. And, the difference will divide evenly 2.
Therefore, when the accountant finds a trial balance difference divisible by 2, the first step is to
look for an account balance exactly half the difference. That is most likely the misplaced balance.
When the difference between debit and credit totals is evenly divisible by 9, this is a
mathematical indicator that the account balances may include a transposition error in one of the
accounts.
A debit balance that should be 12,578 may appear as something like 12,587, for instance.
When the difference between debit and credit totals is divisible neither by 9 or by 2, it is
possible that a single "debit" or "credit" balance is missing from the account lists.
Because the trial balance must balance, accountants may also adjust specific accounts, so that total
"debit DR" and "credit CR" balances match. Adjustments are not so much a matter of fixing errors, as
they are improvements in the accounting accuracy. The intent is to match revenues and expenses
more correctly to the appropriate period.
Adjusting entries to balance the trial balance typically impact two kinds of expense and asset category
accounts: accrual accounts and prepayment accounts:
Adjustments to accrual accounts (such as "accrued depreciation," or "accrued interest
expense") are made to reflect more accurately the timing of actual expense accrual.
Adjustments to prepayment accounts (such as prepaid insurance, office supplies, or floor
space rental) help match the timing for using goods or services.