From “T” to TBFrom “T” to TB
Dr. Clive Vlieland-BoddyDr. Clive Vlieland-Boddy
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Objective 1 Objective 1
Prepare and use a trial balance (TB)Prepare and use a trial balance (TB)
““T” AccountsT” Accounts
Last Session we looked at Exercise 5.1.4Last Session we looked at Exercise 5.1.4 We posted the entries.We posted the entries.
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Bank Account Equity Account
Investors 100,000 100,000 Shares
N0 1 was to Dr Bank and Credit Equity with the money introduced by the shareholders.
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Vehicle Account Bank Loan
Car 20,000 20,000 New Loan
No 2 was to Dr an asset account called Vehicles and Cr the bank loan account with the loan provided to buy the vehicle
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Bank Loan Bank Account
Repay Loan 5,0005,000 Repay Loan
No 3 was to Dr the bank Loan Account with the Repayment of this and Cr the bank account as this was where the funds came from.
Shares 100,000 20,000 New Loan
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Inventories Accounts Payable
Widgets 60,000 60,000 Supplier of Widgets
No 4 was to Dr Inventories and Cr Accounts Payable with goods purchased on credit from a supplier
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Accounts Receivable Sales of Widgets
Customer x 25,000 25,000 Sales
No 5 was to Dr Accounts Receivable and Cr Sales of Widgets with goods sold on credit to customers
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Cost of Goods Sold (COGS)
Inventories
Cost of 6 Widgets 18,000
18,000 Widgets SoldWidgets 60,000
No 6 was to Dr COGS and Cr Inventories with the COGS = 6 times 3,000.
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Telephone Accounts Payable
Phone Bill 1,000 1,000 Phone Co
No 7 was to Dr Telephone and Cr Accounts Payable with the cost of calls.
60,000 Supplier of Widgets
The Balances on the “T” AccountsThe Balances on the “T” Accounts
We balance the “T” accounts by adding up We balance the “T” accounts by adding up each side and carrying forward (c/f) the each side and carrying forward (c/f) the resulting balance and bringing it down as resulting balance and bringing it down as the balance brought down (b/d)the balance brought down (b/d)
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Bank Loan Bank Account
Repay Loan 5,0005,000 Repay Loan
Firstly the bank loan with the two entries. Balancing & carrying forward the net figure. Like wise the bank account
Shares 100,000 20,000 New Loan
95,000 Balance c/f
Balance c/f 15,000
Balance b/d 95,000
100,000 100,000
20,000 20,000
15,000 Balance b/d
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Vehicle Account
Car 20,000
The Vehicle Account and the Equity Account . These are balanced and the net is carried forward….. Brought down.
100,000 Shares
Equity Account
20,000 Balance c/f Balance c/f 100,000
100,000 Balance b/dBalance b/d 20,000
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Accounts Receivable Sales of Widgets
Customer x 25,000 25,000 Sales
Accounts Receivable and Sales of widgets
25,000 Balance c/f
25,000 Balance b/d
Balance c/f 25,000
Balance b/d 25,000
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Cost of Goods Sold (COGS)
Inventories
6 sold 18,000 18,000 Widgets SoldWidgets 60,000
The COGS and the Inventories. Note the Inventories were reduced but the COGS.
18,000 Balance c/f
42,000 Balance c/f
Balance b/d 18,000 Balance b/d 42,000
60,000 60,000
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Telephone Accounts Payable
Phone Bill 1,000 1,000 Phone Co
No 7 was to Dr Telephone and Cr Accounts Payable with the cost of calls.
60,000 Supplier of Widgets1,000 Balance c/f Balance c/f 61,000
61,00061,000
Balance b/d 1,000 61,000 Balance b/d
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Trial BalanceTrial Balance
Lists of all the “T” accounts with their Lists of all the “T” accounts with their balancesbalances
So…..So…..
The Trial BalanceThe Trial Balance
DebitsDebits Bank Balance 95,000Bank Balance 95,000 Vehicle 20,000Vehicle 20,000 Accounts Rec 25,000Accounts Rec 25,000 COGS 18,000COGS 18,000 Inventories 42,000Inventories 42,000 Telephone 1,000Telephone 1,000
Total 201,000Total 201,000
CreditsCredits Bank Loan 15,000Bank Loan 15,000 Equity 100,000Equity 100,000 Sales Sales
25,00025,000 Accounts Pay 61,000Accounts Pay 61,000
Total 201,000Total 201,000
The TB must balance!The TB must balance!
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See Page 26See Page 26
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Locating Trial Balance ErrorsLocating Trial Balance Errors
What if it doesn’t balance?What if it doesn’t balance? Is the addition correct?Is the addition correct? Are all accounts listed?Are all accounts listed? Are the balances listed correctly?Are the balances listed correctly?
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Locating Trial Balance ErrorsLocating Trial Balance Errors
Divide the difference by twoDivide the difference by two Is there a debit/credit balance for this amount Is there a debit/credit balance for this amount
posted in the wrong column?posted in the wrong column? Divide the difference by 9. If evenly Divide the difference by 9. If evenly
divisible, the error may be a slide or divisible, the error may be a slide or transposition errortransposition error
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Objective 2Objective 2
Appreciate the benefits of a work Appreciate the benefits of a work sheetsheet
Using a Using a
WorksheetWorksheetUsing a Using a
WorksheetWorksheet
Steps in Steps in preparationpreparation
Preparing Preparing financial financial statementsstatements
Preparing Preparing adjusting entriesadjusting entries
Closing the Closing the
BooksBooksClosing the Closing the
BooksBooks
Summary of Summary of
Accounting Accounting
CycleCycle
Summary of Summary of
Accounting Accounting
CycleCycle
Balance SheetBalance Sheet
& Income & Income
StatementStatement
Balance SheetBalance Sheet
& Income & Income
StatementStatement
Current assetsCurrent assets
Non Current Non Current AssetsAssets
Current liabilitiesCurrent liabilities
Non Current Non Current liabilitiesliabilities
Owner’s equityOwner’s equity
Revenues & Revenues & ExpensesExpenses
Reversing Reversing entries entries
Correcting Correcting entriesentries
Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Accounting Cycle
Preparing Preparing closing entriesclosing entries
Posting closing Posting closing entriesentries
Preparing a Preparing a closing trial closing trial balancebalance
A multiple-column form used in preparing financial statements. (Often an Excel Spreadsheet)
Not a permanent accounting record.
Five step process.
Use of worksheet is optional.
Using A WorksheetUsing A WorksheetUsing A WorksheetUsing A WorksheetWorksheetWorksheet
Share Capital 1,000,000 Retained Reserves 736,580 Plant & Eq (Cost) 1,250,000 Dep of P & Eq to 31/12/08 250,000 Goodwill 215,000 Investments 800,000 Accounts Receivable 710,040 Inventories (at 31/12/08) 375,600 Bank Balance 175,590 Accounts Payable 328,050 Tax Payable 81,000 Dividends Payable 70,000 Deferred Tax 125,600 Long Term Loan 675,000 Sales 6,050,000 Cost Of Sales 3,120,000 Overheads 2,519,000 Tax on Profits 81,000 Dividends 70,000
Totals 9,316,230 9,316,230
ExampleThe trial balance for The Trendy Corp for the Year Ended December 31, 2009, is as follows.
This is before some final adjustments have to be done!
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.Share Capital 1,000,000 Retained Reserves 736,580 Plant & Eq (Cost) 1,250,000 Dep of P & Eq to 31/12/08 250,000 Goodwill 215,000 Investments 800,000 Accounts Receivable 710,040 Inventories at 31/12/08 375,600 Bank Balance 175,590 Accounts Payable 328,050 Tax Payable 81,000 Dividends Payable 70,000 Deferred Tax 125,600 Long Term Loan 675,000 Sales 6,050,000 Cost Of Sales 3,120,000 Overheads 2,519,000 Tax on Profits 81,000 Dividends 70,000
Totals 9,316,230 9,316,230
Balance SheetTrial Balance Adjustments Closing Trial Balance Income Statement
Steps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a WorksheetSteps in Preparing a Worksheet
1. Prepare a Trial Balance on a Worksheet1. Prepare a Trial Balance on a Worksheet
Trial balance amounts come directly from ledger accounts.
Include all accounts with balances.
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Objective 3Objective 3
Understand The difference between Understand The difference between Assets and ExpenditureAssets and Expenditure
Corporations Have Indefinite LivesCorporations Have Indefinite Lives
They are born with a Certificate of They are born with a Certificate of Incorporation.Incorporation.
They have “Statutes” – A book of the rules They have “Statutes” – A book of the rules and regulations on how the enterprise will be and regulations on how the enterprise will be managed.managed.
If it does die it is only by way of bankruptcy!.If it does die it is only by way of bankruptcy!. However, we need to evaluate them and for However, we need to evaluate them and for
this reason we divide up their lives into this reason we divide up their lives into accounting cycles normally 12 months.accounting cycles normally 12 months.
IncomeIncome IncomeIncome IncomeIncome IncomeIncome IncomeIncome
ExpenditureExpenditure ExpenditureExpenditure ExpenditureExpenditure ExpenditureExpenditure ExpenditureExpenditure
2006 2007 2008 2009 2010
Income Statement
Income Statement
Income Statement
Income Statement
Income Statement
Accounting Cycles – Normally 12 months
Income Statement & Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
What is consumed in the year is in the Income Statement
Unconsumed is in the Balance Sheet
Consumption – Pizza RestaurantConsumption – Pizza Restaurant
At the beginning of an accounting period At the beginning of an accounting period they will have pizzas in the Freezer ready they will have pizzas in the Freezer ready to sell. (Opening Inventories)to sell. (Opening Inventories)
During the period they will sell and buy During the period they will sell and buy more. more.
We need to match sales with the cost of We need to match sales with the cost of those sold.those sold.
At the end of the accounting period there At the end of the accounting period there will again be pizzas in the freezer available will again be pizzas in the freezer available to sell which have NOT been consumed!to sell which have NOT been consumed!
Incomes & ExpendituresIncomes & Expenditures
Incomes represent sales generatedIncomes represent sales generated Expenditures are incurred in generating Expenditures are incurred in generating
the revenues.the revenues. The matching concept requires us to The matching concept requires us to
match income with expenditure in the match income with expenditure in the relevant accounting period.relevant accounting period.
There are issues at the end and the There are issues at the end and the beginning of accounting periods.beginning of accounting periods.
An overlap that often requires adjustment.An overlap that often requires adjustment.
AdjustmentsAdjustments
Expenses may have been incurred but the Expenses may have been incurred but the invoice may appear several weeks after the invoice may appear several weeks after the accounting year end.accounting year end.
Sales may have been made at or before the Sales may have been made at or before the year end but invoiced after.year end but invoiced after.
An event may have occurred before the year An event may have occurred before the year end but only comes to light after.end but only comes to light after.
The picture taken at the year end may therefore The picture taken at the year end may therefore be slightly out of focus and need adjustment.be slightly out of focus and need adjustment.
Study Pack 1 aStudy Pack 1 a
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Revenue = Equity AccountRevenue = Equity Account
This represents an increase in the Equity This represents an increase in the Equity account which is a Credit entry, as this account which is a Credit entry, as this creates profits which belongs to the creates profits which belongs to the shareholders.shareholders.
So as the company has generated So as the company has generated incomes of €25,000, we need to increase incomes of €25,000, we need to increase the Equity account by that sum.the Equity account by that sum.
So Credit (CR) the Equity by €25,000.So Credit (CR) the Equity by €25,000.
The EndThe End
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