MODULE # 2

INFORMATION SHEET 3.1-1

PREPARE TRIAL BALANCE AND FINANCIAL REPORTS

Trial Balance
A trial balance is a bookkeeping worksheet-like account that reflects all the credit
and debit balances of all the ledger accounts. Once we prepare this statement, we
can prepare the final accounts of the company on the basis of this trial balance.

One other important use of the trial balance is that it can determine the
arithmetic accuracy of the accounts. So if both columns of the trial balance tally,
we can be reasonably assured of the accuracy of the accounts. It does not ensure
that the accounts are free of all errors but it can at least establish mathematical
accuracy.

Preparation of Trial Balance

Preparation of trial balance is the third step in the accounting process. First, we
record the transactions in the journal. And then we post them in the general ledger.
Then we prepare a trial balance to verify that the debit totals equal to the credit
totals. Let us take a look at the steps in the preparation of trial balance.

1. To prepare a trial balance we need the closing balances of all the ledger accounts and the cash book as
well as the bank book. So firstly every ledger account must be balanced. Balancing is the difference
between the sum of all the debit entries and the sum of all the credit entries.
 2. Then prepare a three column worksheet. One column for the account name and the corresponding
columns for debit and credit balances.

3. Fill out the account name and the balance of such account in the appropriate debit or credit column

4. Then we total both the debit column and the credit column. Ideally, in a balanced error-free Trial
balance these totals should be the same

5. Once you compare the totals and the totals are same you close the trial balance. If there is a difference
we try and find and rectify errors. Here are some cases that cause errors in the trial balance

 A mistake in transferring the balances to the trial balance

 Error in balancing an account

 The wrong amount posted in the ledger

 Made the entry in the wrong column, debit instead of credit or vice versa

 Mistake made in the casting of the journal or subsidiary book

Rules for Preparation of Trial Balance
While preparation of trial balances we must take care of the following rules/points

1] The balances of the following accounts are always found on the debit column of
the trial balance

 Assets

 Expense Accounts

 Drawings Account

 Cash Balance

 Bank Balance

 Any losses
2] And the following balances are placed on the credit column of the trial balance

 Liabilities

 Income Accounts

 Capital Account
 SELF CHECK
Activity I. Prepare Preliminary trial balance.
Instruction: Prepare a preliminary trial balance with the given data below.

GELOU ENTERPRISES
As of DECEMBER 31, 2017

GENERAL LEDGER

Account Title: Cash

Account No. 101

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-01 175,000 175,000

Jan-01 GJ1 700 174,300

Jan-02 GJ1 15,000 189,300

Jan-03 GJ1 400 188,900

Jan-06 GJ1 18,000 170,900

Jan-10 GJ1 22,246 148,654

Jan-11 GJ1 1,800 146,854

Jan-11 GJ1 28,000 118,854

Jan-13 GJ2 12,740 131,594

Jan-17 GJ2 1,000 132,594

Jan-18 GJ2 6,000 126,594

Jan-19 GJ2 8,000 118,574

Jan-20 GJ2 60,000 178,594

Jan-22 GJ2 2,500 176,094

 Jan-25 GJ2 25,500 201,594

Jan-26 GJ2 1,300 200,294

Jan-29 GJ2 1,200 199,094

Jan-30 GJ2 6,500 192,594

Jan-30 GJ3 24,500 217,094

Account Title: Accounts Receivable

Account No. 112

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-05 13,000 13,000

Jan-14 GJ1 26,000 3,900

Jan-15 GJ1 13,000 26,000

Jan-16 GJ2 1,500 24,500

Jan-30 GJ2 24,500 -

Jan-31 GJ3 3,500 3,500

Account Title: Merchandise Inventory

Account No. 120

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-02
GJ1 24,000 24,000

Jan-03
GJ1 700 24,700

Jan-04
GJ1 800 16,700

Jan-05
GJ1 7,500 9,200
 Jan-07
GJ1 1,300 7,900

Jan-11
GJ1 454 7,446

Jan-13
GJ1 28,000 35,446

Jan-14
GJ2 12,700 22,746

Jan-17
GJ2 1,000 21,746

Jan-17 GJ2 14,500 7,246

Jan-25 GJ2 12,000 19,246

Jan-31 GJ3 1,400 17,846

Account Title: Supplies

Account No. 126

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit
Jan-11 GJ1 1800 1800

Account Title: Equipment

Account No. 155

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-01
GJ1 130,000 130,000

Jan-10
GJ1 18,000 148,000

Jan-19 GJ1 8,000 156,000

Account Title: Accounts Payable

Account No. 201

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-02
GJ1 24,000 24,000
Jan-07 1300
GJ1 22,700

Jan-11 22700
GJ1 -

Jan-31
GJ1 12,000 12,000

Account Title: Notes Payable

Account No. 210

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-20 GJ2 60,000 60,000

Account Title: W. Solis Capital

Account No. 301

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit
Jan-01 GJ1 305000 305000

Account Title: W. Solis Drawing

Account No. 310

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-18 GJ2 6,500 6,500

Account Title: Sales

Account No. 401

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-04
GJ1 15,000 15,000

Jan-05
GJ1 13,000 28,000

Jan-14
GJ2 26,000 54,000

Jan-25
GJ2 25,500 79,500
 Jan 31 GJ3
3,500 83,000

Account Title: Sales Returns & Allowances

Account No. 412

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-16
GJ2 1,500 1,500

Jan-29 GJ2 1,200 2,700

Account Title: Sales Discount

Account No. 420

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit
Jan-15 GJ2 260 260

Account Title: Cost of Goods Sold

Account No. 520

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-04
GJ1 8,000 8,000

Jan-05
GJ1 7,500 15,500

Jan-14
GJ2 12,700 28,200

Jan-25
GJ2 14,500 42,700

Jan-31
GJ3 1,400 44,100

Account Title: Advertising Expense

Account No. 601

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-26
GJ2 1,300 1,300
Account Title: Freight Out
Account No. 644

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-06
GJ1 400 400

Account Title: Salaries

Account No. 701

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-30
GJ2 6,500 6,500

Account Title: Utilities

Account No. 720

Post Balance
Date Remarks Debit Credit
Ref. Debit Credit

Jan-22
GJ2 2,500 2,500
 ANSWER KEY 3.3-1

Activity II. Prepare preliminary trial balance.

GELOU ENTRERPRISES
Preliminary Trial Balance
December 31, 2017

Account No. Account Titles Debit Credit

101 Cash 217,094
112 Account Receivable 3,500
120 Merchandise Inventory 17,846
126 Supplies 1,800
155 Equipment 156,000
201 Accounts Payable 12,000
212 Notes Payable 60,000
301 W. Solis, Capital 305,000
310 W. Solis, Drawing 6,000
401 Sales 83,000
412 Sales Returns & Allowances 2,700
420 Sales Discounts 260
520 Cost of Goods Sold 44,100
601 Advertising Expense 1,300
644 Freight Out 400
701 Salaries 6,500
720 Utilities 2,500
460,000 460,000