Chapter 5

A trial balance is a list of all accounts and each account’s debit or credit balance that is used to prove that the totals of the debit and credit balances in the ledger accounts are equal. Throughout the accounting cycle, there are three trial balances prepared: the unadjusted trial balance, the adjusted trial balance, and the post-closing trial balance.

The purpose of a trial balance is to ensure that the transactions were recorded using the correct accounts.

A trial balance does not ensure that all amounts were calculated correctly.

You are the accountant for a company that operates under accrual basis accounting. You prepare a trial balance at the end of the period. The total debits and credits are not equal. You first want to look for accounts that do not have a normal balance. Which accounts should have a credit balance?

Account Is balance credit?
Liabilities
Owner, Capital
Revenues
Assets
Expenses
Withdrawals

APPLY THE CONCEPTS: Record adjusting entries

  1. Keaton Excavating provides excavating and grading services. In the table below is a list of Keaton’s accounts with the balance at the end of June. Only accounts with a balance greater than zero are shown.
Account Balances: June 30
Cash $22,000
Accounts Receivable 43,000
Supplies 17,750
Prepaid Insurance 8,600
Machinery 246,000
Accumulated Depreciation 196,800
Accounts Payable 21,120
Susan Keaton, Capital 132,000
Susan Keaton, Drawing 44,000
Fees Earned 32,790
Wages Expense 1,360
View the complete chart of accounts for Keaton Excavating.
Assets Liabilities Owner’s Equity Revenues Expenses
Cash Accounts Payable Susan Keaton, Capital Fees Earned Wages Expense
Accounts Receivable Wages Payable Susan Keaton, Drawing Supplies Expense
Supplies Insurance Expense
Prepaid Insurance Depreciation Expense
Prepaid Rent
Machinery
Accumulated Depreciation
  1. Review the adjustment data in the box below the account balances.Adjustment data for June :(a) Supplies on hand at the end of the month are $ 14,000.(b) Insurance that expired during the month was $ 900.(c) Depreciation on the Machinery for the month was $ 4,920.(d) Employees’ wages earned during the month but unpaid were $ 3,780.
Want to know about the transactions? Review the transaction details below.
(a) The balance in the supplies account before the adjustment was $17,750. At the end of the period, an inventory is taken to determine the cost of the supplies actually on hand. The remaining supplies have a cost of $14,000. The difference is attributed to the supplies used during the period. Since supplies are an asset, the use of that asset is an expense.
(b) Prepaid insurance is an asset on which the company paid its premium for more than one period. The cost of the insurance needs to be spread over the periods in which it is used. The balance in Prepaid Insurance before the adjustment was $8,600. However, some of the prepaid insurance has expired during the month; that is, it has been used. Therefore, an expense must be recorded for the amount expired.
(c) Depreciation is the process in which the cost of long-term assets, such as buildings or equipment, is allocated as expense over several periods. The depreciation recorded each period is added to Accumulated Depreciation rather than decreasing the asset account itself. Accumulated Depreciation is a contra-asset account, which means that the balance in Accumulated Depreciation is deducted from the balance in the asset account to arrive at the asset’s net book value.
(d) At the end of the period, there are often expenses that have been incurred but not yet paid. That is usually the case with wages and salaries. This adjustment is to record the expense and liability for wages incurred in the current period but that will be paid in the next period.
  1. Record the adjusting entries. If an amount box does not require an entry, leave it blank.
Adjustment (a)
Supplies Expense
Supplies
Adjustment (b)
Insurance Expense
Prepaid Insurance
Adjustment (c)
Depreciation Expense
Accumulated Depreciation
Adjustment (d)
Wages Expense
Wages Payable
  1. APPLY THE CONCEPTS: Prepare the adjusted trial balanceAfter the adjusting entries have been recorded, another trial balance is prepared. Complete the adjusted trial balance below for Keaton Excavating on June 30. Notice that some of the account balances have been entered already. Also note that there are some accounts in the adjusted trial balance that were not included in the unadjusted trial balance. This is because those accounts had a zero balance before the adjusting entries were recorded.

    Assume that all accounts have a normal balance. To calculate the adjusted balance, apply the adjusting entries. Note: If an amount box does not require an entry, leave it blank.

Keaton Excavating
Adjusted Trial Balance
June 30
Debit Balances Credit Balances
Cash $22,000
Accounts Receivable 43,000
Supplies $
Prepaid Insurance
Machinery 246,000
Accumulated Depreciation
Accounts Payable 21,120
Wages Payable
Susan Keaton, Capital 132,000
Susan Keaton, Drawing
Fees Earned
Wages Expense
Supplies Expense
Insurance Expense
Depreciation Expense
Totals $ $

 

 

Last Updated on February 11, 2019 by Essay Pro