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Chapter 3: Question 6Q (page 127)

Is it necessary that a trial balance be taken periodically? What purpose does it serve?

Short Answer

Expert verified

Yes, it is necessary to prepare the trial balance periodically. The main purpose of preparing a trial balance is to verify whether the entries made in the company's bookkeeping system are mathematically accurate.

Step by step solution

01

Meaning of trial balance

A trial balance is a statement that depicts the sum total of debits and credits of all the ledger accounts with the purpose of checking the arithmetical accuracy of books of accounts.

02

Purpose of preparing a trial balance periodically

The necessity of preparing trial balance is as follows:

  • It examines the correctness of the entries made; it justifies that the debit and credit balances are equal in the ledger.
  • It supplies a list of ledger balances and their accounts which is beneficial for the preparation of financial statements and for the supply of accounting data of the business.

Therefore, the preparation of trial balance periodically is of great importance for the concern.

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Most popular questions from this chapter

When the accounts of Daniel Barenboim Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of an annual fiscal period.

  1. The prepaid insurance account shows a debit of \(5,280, representing the cost of a 2-year fire insurance policy dated August 1 of the current year.
  2. On November 1, Rent Revenue was credited for \)1,800, representing revenue from a subrental for a 3-month period beginning on that date.
  3. Purchase of advertising materials for \(800 during the year was recorded in the Advertising Expense account. On December 31, advertising materials of \)290 are on hand.
  4. Interest of $770 has accrued on notes payable.

Instructions

Prepare the following in general journal form.

  1. The adjusting entry for each item.
  2. The reversing entry for each item where appropriate.

E3-2 (L02) (Corrected Trial Balance) The following trial balance of Wanda Landowska Company does not balance. Yourreview of the ledger reveals the following. (a) Each account had a normal balance. (b) The debit footings in Prepaid Insurance,Accounts Payable, and Property Tax Expense were each understated \(100. (c) A transposition error was made in AccountsReceivable and Service Revenue; the correct balances for Accounts Receivable and Service Revenue are \)2,750 and \(6,690,respectively. (d) A debit posting to Advertising Expense of \)300 was omitted. (e) A \(1,500 cash drawing by the owner was debited to Owner鈥檚 Capital and credited to Cash.

WANDA LANDOWSKA COMPANYTRIAL BALANCEAPRIL 30, 2017

Debit (\)) Credit (\()Cash \) 4,800Accounts Receivable 2,570Prepaid Insurance 700Equipment \( 8,000Accounts Payable 4,500Property Taxes Payable 560Owner鈥檚 Capital 11,200Service Revenue 6,960Salaries and Wages Expense 4,200Advertising Expense 1,100Property Tax Expense 800

Total \)20,890 $24,500

Prepare a correct trial balance.

(L07) (Cash and Accrual Basis) Wayne Rogers Corp. maintains its financial records on the cash basis of accounting. Interested in securing a long-term loan from its regular bank, Wayne Rogers Corp. requests you as its independent to convert its cash-basis income statement data to the accrual basis. You are provided with the following summarized data covering 2016, 2017, and 2018

2016

2017

2018

Cash receipts from sale

On 2016 sales

\(295,000

\)160,000

\(30,000

On 2017 sales

0

\)355,000

\(90,000

On 2018 sales

0

0

\)408,000

Cash payments for expenses:

On 2016 expenses

\(185,000

\)67,000

\(25,000

On 2017 expenses

\)40,000a

\(160,000

\)55,000

On 2018 expenses

0

\(45,000b

\)218,000

a Prepayments of 2017 expenses.

b Prepayments of 2018 expenses.

Instructions

(a) Using the data above, prepare abbreviated income statements for the years 2016 and 2017 on the cash basis.

(b) Using the data above, prepare abbreviated income statements for the years 2016 and 2017 on the accrual basis.

E3-17 (L02) (Transactions of a Corporation, Including Investment and Dividend) Scratch Miniature Golf and DrivingRange Inc. was opened on March 1 by Scott Verplank. The following selected events and transactions occurred during March.Mar. 1 Invested \(50,000 cash in the business in exchange for common stock.3 Purchased Michelle Wie鈥檚 Golf Land for \)38,000 cash. The price consists of land \(10,000, building \)22,000, and equipment\(6,000. (Make one compound entry.)5 Advertised the opening of the driving range and miniature golf course, paying advertising expenses of \)1,600.6 Paid cash \(1,480 for a one-year insurance policy.10 Purchased golf equipment for \)2,500 from Singh Company, payable in 30 days.18 Received golf fees of \(1,200 in cash.25 Declared and paid a \)500 cash dividend.30 Paid wages of \(900.30 Paid Singh Company in full.31 Received \)750 of fees in cash.Scratch uses the following accounts: Cash, Prepaid Insurance, Land, Buildings, Equipment, Accounts Payable, Common Stock,Dividends, Service Revenue, Advertising Expense, and Salaries and Wages Expense.InstructionsJournalize the March transactions. (Provide explanations for the journal entries.)

The trial balance of Bellemy Fashion Center contained the following accounts at November 30, the end of the company鈥檚 fiscal year.

BELLEMY FASHION CENTER

TRIAL BALANCE

NOVEMBER 30, 2017

Debit

Credit

Cash

\( 28,700

Accounts Receivable

33,700

Inventory

45,000

Supplies

5,500

Equipment

133,000

Accumulated Depreciation鈥擡quipment

\) 24,000

Notes Payable

51,000

Accounts Payable

48,500

Common Stock

90,000

Retained Earnings

8,000

Sales Revenue

757,200

Sales Returns and Allowances

4,200

Cost of Goods Sold

495,400

Salaries and Wages Expense

140,000

Advertising Expense

26,400

Utilities Expenses

14,000

Maintenance and Repairs Expense

12,100

Delivery Expense

16,700

Rent Expense

24,000

\(978,700

\)978,700

Adjustment data:

1. Supplies on hand total \(1,500.

2. Depreciation is \)15,000 on the equipment.

3. Interest of \(11,000 is accrued on notes payable at November 30.

Other data:

1. Salaries expense is 70% selling and 30% administrative.

2. Rent expense and utilities expenses are 80% selling and 20% administrative.

3. Notes payable worth \)30,000 are due for payment next year.

4. Maintenance and repairs expense is 100% administrative.

Instructions

(a) Journalize the adjusting entries.

(b) Prepare an adjusted trial balance.

(c) Prepare a multiple-step income statement and retained earnings statement for the year and a classified balance sheet as of November 30, 2017.

(d) Journalize the closing entries.

(e) Prepare a post-closing trial balance.
See all solutions

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