Facts that You Should Know about the Trial Balance

A Trial Balance is a listing of all the assets, liabilities, capital, revenue and expenses account balances at one point in time.

Purpose of the Trial Balance

1. It indicates if the ledger is in balance by showing whether the total accounts with debit balances equals the total accounts with credit balances.

2. It aids in allocating errors.

3. It assists in the preparation of financial statement

A trial balance in which debits equals credits is not necessarily error-free. A  trial balance may contain errors but still look correct if:

                1. No entry was made for a given transactions.

                2. An entry was posted twice.

                3. An amount was journalized or posted to the wrong account.

                4. An incorrect amount was recorded for a given transaction.

Transposition Error Example: P864 is written or posted as P684 or P468.

Slide Error Example: P684.00 is written or posted as P68.40 or P6.84.

Procedure to Correct Errors in Journalizing and Posting:

1. Draw a straight horizontal-line through the error and insert the correct title or amount if the entry is incorrect or the posting is incorrect.
2. Make a correcting entry and post it to correct wrong entry already posted.

Correcting Entry is an entry made to correct an error in a journal entry discovered after posting.

Definition of Accounting Terms relating to Business Transaction Flow

Source Document- A paper prepared as evidence to support a business transaction. Examples of source documents are: invoices (purchases and sales), receipts, memorandums, deposit slips, check stubs, cash register tapes, payroll time cards.

The Journal is the book of original entry.

Two column journal is an all purpose journal which can be used by a business having simple operations and limited transactions.

Journalizing is the process of recording a business transaction in the journal.

Posting is the process of transferring the data from journal to the ledger.

The Ledger is the book of final entry.

The Trial Balance is the listing of all the accounts in the general ledger and the sum of the debit and credit amounts of their balances.

Chart of Accounts is a listing of all accounts and their account (code) number used for journalizing business transactions.

The Rules of Debit and Credit: An Overview

Some accounting students are not yet aware on the rules on debits and credit, which are summarized below:

Rules for Asset Accounts

1. Assets accounts are increased by debits.

2. Assets accounts are decreased by credits.

3. The normal balance is a debit balance.

Rules for Liability and Owner’s Equity Accounts:

1. Liability and capital accounts are increased by credits.

2. Liability and capital accounts are decreased by debits.

3. The normal balance is a credit balance.

Common Topics in Basic Accounting that You should Know about

Among the topics covered in basic accounting are the following:

·         Definition of Accounting

·         Role of Accounting in Businesses

·         Types of Businesses

·         Types of Ownership Structure

·         Basic Elements of Accounting

·         Accounting Processes

·         Accounting Equation

·         Business Transactions

·         Financial Statements

·         Double Entry Accounting

·         T - Account

·         Rules of Debit and Credit

·         Rules of Liability and Owner’s Equity

·         Trial Balance

·         General Journal

·         General Ledger

·         Chart of Accounts

·         Cash Basis Vs. Accrual Basis of Accounting

·         Adjustments and Adjusting Entries

·         Accruals and Deferrals

·         Adjusting Process

·         Accounting Cycle

·         Worksheet

·         Financial Statements (Balance Sheet and Income Statement)

·         Accounting Cycle for Merchandising Business

*The italicized items are considered by some as difficult topics

If you are adept on the above topics already, you can surely be considered as an accountant regardless of the course you are taking.