Discuss the two forms of trial balance. give their cons and pros of each forms.
The pros of the two forms are the following:
1. It ensures that the transactions recorded in the books of accounts have identical debit and credit amount.
2. Balance of each ledger account has been computed correctly.
3. Balance of each and every ledger account has been transferred accurately and on the correct side of the sheet on which trial balance has been prepared.
4. The debit and the credit columns of trial balance have been added up correctly.
5. Preparation of final accounts is not possible without preparing trial balance first.
6. Agreed trial balance is a prima facie evidence of the arithmetical accuracy of the accounting books maintained.
7. Errors which are revealed by preparing trial balance (listed below) are rectified even before the preparation of final accounts.
1. What is posting? In what books of accounts this is being done?
--Posting is the process of transferring entries from the journal to the Ledger and it is the second step of the accounting process.To post is to summarize all journal entries and transfer them to the general ledger accounts. Posting is done at the end of an accounting period (monthly).
--Posting is done in the GENERAL LEDGER.
2. What is “cross-referencing” or “cross-indexing”? Explain its importance.
--Cross-referring or cross indexing is the process wherein the folio column of the ledger contains the page number of the journal and simultaneously the folio column of the journal contain the page number or account number of the ledger.
--It is for convenience purposes in using the folio and is easy to locate the account in general ledger.
3. What is Footing? How is it accomplished in the General Ledger?
--Footing is the process of adding each of the two amount columns of an account or item in the general ledger and finding their balances thereof.
--In Footing the account, a well sharpened pencil should be used in writing the total of the amount and the account balance. If an account is debit balance (debit total is bigger than the credit total), the amount of difference is placed on the particular column of the debit side. If the account, on the other hand is credit balance (credit total is bigger than the debit total), the amount of difference is placed in the particular column of the credit side. If there is only one entry in any side of an account in the ledger, no footing is done and the entry is left as is. Footing is nearly the total of the column and if error is committed, it maybe erased and corrected easily because pencil is being used. Footing is not considered an entry posted in the general ledger.
4. What is a Trial Balance?
--Trial Balance is a list of all the nominal ledger (general ledger) accounts contained in the ledger of a business. This list will contain the name of the nominal ledger account and the value of that nominal ledger account. If the journal entries are error-free and were posted properly to the general ledger, the total of all of the debit balances should equal the total of all of the credit balances. If the debits do not equal the credits, then an error has occurred somewhere in the process. The total of the accounts on the debit and credit side is referred to as the trial balance.
5. What is the source of a Trial Balance?
--The sources of trial balance are the debit and credit entries of each account in the general ledger.
6. What is the purpose of a Trial Balance?
--The purpose of preparing a trial balance is to check the arithmetical or mathematical accuracy in posting and footing of the debit and credit entries of accounts in the General Ledger.
7. When is a Trial Balance prepared?
--The period covered by a trial balance depends upon the need of the bookkeepers or accountants to prepare this summary report. It can be on a monthly, quarterly, semi-annually or annually. This report can be prepared in any given period regardless of whether financial statements are prepared or not.
8. When a Trial Balance is said to be “forced balance”?
--The Trial Balance is said to be "forced balance" when a deliberate or an intentional act is done by letting it appear that the trial balance is in-balance although it is actually out of balance by changing the amount or changing an account with the amount of the unlocated difference, the trial balance is said to be forced balance which is never permissible in the accounting practice.
9. Enumerate some of the errors committed that will make a trial balance to be ”out of balance”?
--Some errors and omissions committed that will result a trial balance to be “out of balance” are as follows:
Case A
a) What was he trying to do with the trial balance?
He’s trying to make the trial balance appeared to be “in balance”.
b) Do you think this error will be discovered? How? When? And who?
The error committed by the bookkeeper will surely be discovered. This fault will be discovered when the general ledger, general journal, journal entries and the T-account will be checked and reviewed by the accountant and the auditors. In short, this deliberate act can be discovered during the audit or examination of books of accounts.
Case B
a) Was the arrangement of the account correct?
The arrangement of account made is definitely incorrect. The accounts must be arranged according by assets, liabilities, owner’s equity, income, expenses respectively.
b) Do you agree when a trial balance is “in-balance”, the work is presumably correct?
Yes, I do agree that when a trial balance is “in-balance” the work is presumably correct. Because we can take an assumption that no error has been committed in the process of journalizing and posting and we can say that there is accuracy in establishing the trial balance.
I will tell the two students that the errors they present will absolutely prevent the trial balance from balancing because it will create an error when it comes to addition or subtraction of amount in the transactions. The error that they commit is a sliding error where in the decimal point was misplaced. The 700,000 was incorrectly written as 700 and the 500 was incorrectly written as 50.
For example, in situation A, the amount of debit total is 800,000 and 700,000 of that total come from the debited cash. Since the written credited salaries expense is 700, the amount that appears in the credit total is probably 100,700. Therefore, the trial balance is out of balance because of the sliding error.
--Posting is done in the GENERAL LEDGER.
2. What is “cross-referencing” or “cross-indexing”? Explain its importance.
--Cross-referring or cross indexing is the process wherein the folio column of the ledger contains the page number of the journal and simultaneously the folio column of the journal contain the page number or account number of the ledger.
--It is for convenience purposes in using the folio and is easy to locate the account in general ledger.
3. What is Footing? How is it accomplished in the General Ledger?
--Footing is the process of adding each of the two amount columns of an account or item in the general ledger and finding their balances thereof.
--In Footing the account, a well sharpened pencil should be used in writing the total of the amount and the account balance. If an account is debit balance (debit total is bigger than the credit total), the amount of difference is placed on the particular column of the debit side. If the account, on the other hand is credit balance (credit total is bigger than the debit total), the amount of difference is placed in the particular column of the credit side. If there is only one entry in any side of an account in the ledger, no footing is done and the entry is left as is. Footing is nearly the total of the column and if error is committed, it maybe erased and corrected easily because pencil is being used. Footing is not considered an entry posted in the general ledger.
4. What is a Trial Balance?
--Trial Balance is a list of all the nominal ledger (general ledger) accounts contained in the ledger of a business. This list will contain the name of the nominal ledger account and the value of that nominal ledger account. If the journal entries are error-free and were posted properly to the general ledger, the total of all of the debit balances should equal the total of all of the credit balances. If the debits do not equal the credits, then an error has occurred somewhere in the process. The total of the accounts on the debit and credit side is referred to as the trial balance.
5. What is the source of a Trial Balance?
--The sources of trial balance are the debit and credit entries of each account in the general ledger.
6. What is the purpose of a Trial Balance?
--The purpose of preparing a trial balance is to check the arithmetical or mathematical accuracy in posting and footing of the debit and credit entries of accounts in the General Ledger.
7. When is a Trial Balance prepared?
--The period covered by a trial balance depends upon the need of the bookkeepers or accountants to prepare this summary report. It can be on a monthly, quarterly, semi-annually or annually. This report can be prepared in any given period regardless of whether financial statements are prepared or not.
8. When a Trial Balance is said to be “forced balance”?
--The Trial Balance is said to be "forced balance" when a deliberate or an intentional act is done by letting it appear that the trial balance is in-balance although it is actually out of balance by changing the amount or changing an account with the amount of the unlocated difference, the trial balance is said to be forced balance which is never permissible in the accounting practice.
9. Enumerate some of the errors committed that will make a trial balance to be ”out of balance”?
--Some errors and omissions committed that will result a trial balance to be “out of balance” are as follows:
- The footing of the debit and credit columns of the trial balance is wrong;(error)
- An account with open balance in the General Ledger was not listed in the trial balance;(omission)
- The footing of the account balance in the General Ledger is wrong;(error)
- Posting the amount of an item to the wrong side of the account or ledger;(error)
- Omission is posting of either debit or credit entry in the journal;(omission)
The balance of an account is listed in the trial balance with a wrong amount, such as transposition of the amount or sliding of the amount of listing a different amount from the correct one.
10. What are the possible errors that when committed, the trial balance will still be “in balance”?
The following are errors that when committed, the trial balance will still be "in balance":
The following are errors that when committed, the trial balance will still be "in balance":
- A Transaction may not have been recorded on the journal;(omission)
- A journal entry may not have been posted in the ledger in its entirety;(omission)
- Posting a correct amount to a wrong account;(error)
- Wrong charging of account title in the journal entry and was carried to posting in the ledger;(error)
11. Differentiate a “sliding error” from that of a “transposition error”.
--In sliding error is committed when the decimal point was misplaced or slide while in the transposition error, the orders of the figures was reversed. Example, in sliding error, 35 is incorrectly written as 3.5 while in transposition error 35 is incorrectly written as 53.
12. Are omissions considered errors? Explain.
--No, because omission refers to a mistake in a trial balance where it must be removed while errors refer to the mistake that can be corrected.
13. Differentiate “single ruling” from “double ruling”?
--Single ruling is done after listing the last account title while double rule is done when the trial balance is already in balance. Single rule is the line drawn across the two amount columns while double rule is the line drawn under the totals of both debit and credit columns.
14. How are the accounts in the trial balance arranged?
-- The order of accounts is generally as follows:
• Assets
• Liabilities
• Equity
• Income
• Expenses
No indention are made in listing the account titles and no peso sign for the amount.. Each account title must be alphabetically arranged.
--In sliding error is committed when the decimal point was misplaced or slide while in the transposition error, the orders of the figures was reversed. Example, in sliding error, 35 is incorrectly written as 3.5 while in transposition error 35 is incorrectly written as 53.
12. Are omissions considered errors? Explain.
--No, because omission refers to a mistake in a trial balance where it must be removed while errors refer to the mistake that can be corrected.
13. Differentiate “single ruling” from “double ruling”?
--Single ruling is done after listing the last account title while double rule is done when the trial balance is already in balance. Single rule is the line drawn across the two amount columns while double rule is the line drawn under the totals of both debit and credit columns.
14. How are the accounts in the trial balance arranged?
-- The order of accounts is generally as follows:
• Assets
• Liabilities
• Equity
• Income
• Expenses
No indention are made in listing the account titles and no peso sign for the amount.. Each account title must be alphabetically arranged.
CASE STUDIES
Case A
a) What was he trying to do with the trial balance?
He’s trying to make the trial balance appeared to be “in balance”.
b) Do you think this error will be discovered? How? When? And who?
The error committed by the bookkeeper will surely be discovered. This fault will be discovered when the general ledger, general journal, journal entries and the T-account will be checked and reviewed by the accountant and the auditors. In short, this deliberate act can be discovered during the audit or examination of books of accounts.
Case B
a) Was the arrangement of the account correct?
The arrangement of account made is definitely incorrect. The accounts must be arranged according by assets, liabilities, owner’s equity, income, expenses respectively.
b) Do you agree when a trial balance is “in-balance”, the work is presumably correct?
Yes, I do agree that when a trial balance is “in-balance” the work is presumably correct. Because we can take an assumption that no error has been committed in the process of journalizing and posting and we can say that there is accuracy in establishing the trial balance.
Case C
Two students are discussing the use of a trial balance. They wonder whether the following errors, each considered separately would prevent the trial balance from balancing.
a) The bookkeeper debited cash for P700,000 and credited salaries expense of P700 for payment of salaries.
b) Cash collected on account was debited on cash account for P500 and service income was credited for P50.
Two students are discussing the use of a trial balance. They wonder whether the following errors, each considered separately would prevent the trial balance from balancing.
a) The bookkeeper debited cash for P700,000 and credited salaries expense of P700 for payment of salaries.
b) Cash collected on account was debited on cash account for P500 and service income was credited for P50.
What would you tell them?
I will tell the two students that the errors they present will absolutely prevent the trial balance from balancing because it will create an error when it comes to addition or subtraction of amount in the transactions. The error that they commit is a sliding error where in the decimal point was misplaced. The 700,000 was incorrectly written as 700 and the 500 was incorrectly written as 50.
For example, in situation A, the amount of debit total is 800,000 and 700,000 of that total come from the debited cash. Since the written credited salaries expense is 700, the amount that appears in the credit total is probably 100,700. Therefore, the trial balance is out of balance because of the sliding error.
