FABM

• Trial Balance


  Lists all the debit and credit balances of the accounts from the general ledger
• Purpose of Trial Balance


  • Establishes the equality of debit and credit accounts
  • Determines whether or not nominal accounts should be closed
  • Serves as a foundation for preparing financial statements in draft form
• Trial Balance


  Lists all the debit and credit balances of the accounts from the general ledger
• Purpose of Trial Balance


  • Establishes the equality of debit and credit accounts
  • Determines whether or not nominal accounts should be closed
  • Serves as a foundation for preparing financial statements in draft form
• Types of Trial Balance

  • Trial Balance of Totals
  • Trial Balance of Balance
• Trial Balance of Totals


  All accounts in the ledger are listed, and both the debit and credit totals are shown
• Trial Balance of Balance


  Only the accounts in the ledger that have open balances are listed. The only place where the ledger balance is displayed
• Parts of a Trial Balance

  • Heading
  • Body
• Heading


  • Name of the business
  • Type of financial document being prepared
  • Accounting period covered
• Body


  • Account Titles
  • Debit and Credit balances taken from the ledger
• Procedures in Preparing the Trial Balance

  1. Write the heading

  2. List all accounts with open balances in the general ledger in the following order, without any indentions

  3. Draw a single line in the debit and credit columns

  4. Foot the debit and credit columns and double-rule the totals
• Journalizing follows the basic notions of double-entry bookkeeping. The amount debited should be equal to the amount credited in all cases.
• Journalizing error

  Incorrect account title is used to record a transaction
• Errors in Posting

  • Posting the correct amount to the wrong account
  • Posting the amount to the wrong side of the account
  • Transposition
  • Transplacement
• Posting the correct amount to the wrong account

  Correct journal entries may occasionally be posted in another account. The trial balance's overall debits and credits will still balance, but the individual account balances will be incorrect.
• Posting the amount to the wrong side of the account

  The journal entries are accurate, but the amounts are posted to the wrong side of the account. The trial balance totals will be equal despite this inaccuracy, but the individual account balances in the ledger will be incorrect.
• Transposition


  Two adjacent numbers are interchanged
• Transplacement


  An amount is modified due to a misplaced decimal point denoting centavos
• Mathematical Mistakes


  Incorrect debit and credit footing
• Omissions


  Information is not given accounting recognition in the book of accounts
• Types of Omissions Errors


  • The transaction was not recorded in the journal
  • The journal entry was not posted in the ledger
• Steps to Locate Errors in the Trial Balance

  1. Re-enter the trial balance's debit and credit columns

  2. Check whether the accounts have normal balances if the trial balance is still out of balance after completing step 1

  3. Determine the amount of difference between the debit and credit totals if the trial balance is still out of balance after step 2
• Difference divisible by two


  Indicates a possible error in incorrect account balance listing
• Difference is nine or a multiple of 9

  Indicates a possible transposition error
• Difference is divisible by nine

  Indicates a possible transposition or sliding error
• Difference is 1, 10, 100, or 1,000

  Indicates a possible footing error
• Adjusting entries


  Used to update a business's account balances, prepared because some accounts affect more than one accounting period. Being done to have no overstatement or understatement of balance sheet and income statement accounts. This involves recognizing income or expense with a corresponding asset or liability account, that affects both Statement of Financial Position and Statement of Comprehensive Income Accounts.
• Purpose of adjusting entries

  • To update a business's account balances
  • To recognize income or expense with a corresponding asset or liability account
  • To affect both Statement of Financial Position and Statement of Comprehensive Income Accounts
• Revenue Recognition Principle


  Recognizes revenue when earned, regardless of when cash is received
• Expense Recognition


  Records expenses in the accounting books as long as the expenses have been incurred, whether the company has paid for them or not
• Matching Principle


  Expenses should match their related revenues in the same accounting period
• Depreciation Expense


  Decreases the value of a fixed asset. Recognized at the end of the accounting period because of the revenue generated when the fixed assets are used. Also, fixed assets become worn and torn because of usage and passage of time. When the Depreciation Expense increased, it is recorded as debit to Depreciation Expense.
• Other terms related to Depreciation Expense

  • Accumulated Depreciation
  • Book Value
  • Depreciable Cost
• Accumulated Depreciation


  Contra-asset account used to record depreciation of a fixed asset. When the asset decreases, it is recorded as credit to Accumulated Depreciation account.
• Book Value


  Cost less Accumulated Depreciation
• Formula for Depreciation Expense

  Cost - Salvage Value / Estimated Useful Life
• Accruals


  Revenue earned but the payment is not yet collected by the company, or expenses incurred but yet paid by the company
• Types of Accruals


  • Accrued Revenue
  • Accrued Expenses
• Accrued Revenue


  Unrecorded revenues that the company has earned but remain uncollected, that increases the company's assets and increases income. It is recorded as debit to receivable account and credit to an income account.
• Accrued Expenses


  Expenses that have been incurred by the business but are yet to be recorded and yet to be paid, that increases the company's expense, decreasing the owners equity and increase liability. It is recorded as debit to an expense account and credit to a liability account.