Quick Tests for Detecting Error: Trial Balance Edition

There are four quick tests that might reveal a single error. Make sure before you do anything, calculate the difference between the debit and credit totals.

1. If the trial balance difference is a multiple of 10, then an error n addition has likely been made. Re-add the trial balance columns. If this does not work, recalculate the balance for each account.
2. Check both the ledger and the journal to see if the trial balance difference is equal to an amount entered in the ledger or the journal. Whenever you find such an amount, verify it to make sure that it has been handled correctly.
3.Divide the trial balance by two. Search (1) the trial balance and (2) the ledger accounts for this divided amount. This usually occurs when you have misplaced an amount on the wrong side. (Debit or Credit)
4. If the trial balance difference is a multiple of 9, it is likely that a transposition error or a decimal point error has occurred. Transposition error is a mistake caused by changing the order of digits when transferring figure from one place to another. Decimal point error is a mistake caused by misplacing the decimal point.

If these quick tests does not work to help you find the mistake, it is highly possible that you created multiple mistakes. Go back and double check all accounts and amount inputted.

Posting!

Each individual amount entered in the journal, must perform 6 steps. Five of on the ledger and one on the journal.
First Five Steps: Ledger
Step 1: Record the date. (Super Important) Use next unused line on in the account.
Step 2: Record the page number of the journal in the posting reference (Labelled P.R) column of the account. Write the letter J (Indicates Journal) in front of this number.
Step 3: Record the amount. Debit amounts are entered in the debit columns of the accounts. Credit amounts are entered in the credit columns oft the accounts.
Step 4: Calculate the new balance. Indicate whether this balance is debit or credit in the Dr/Cr column.
Step 5: Enter the new account balance you calculated in Step 4 in the balance column.
Last Step:  Journal
Step 6: Record the number of the ledger account that received the posting. Enter this account number in the posting reference (P.R.) column on the same line as the amount posted.

The process of transferring information from journal to the ledger is posting. This six step procedure helps the recording be more organized and clear.

ALL ABOUT TAXES!

Sales tax is referred to tax dollars being generated from business transactions.

There are four principles of taxation:
1) Tax dollars are collected by the buyer of the goods.
2) The tax dollars are collected and recorded in a separate liability account.
3) The tax dollars belong to the government.
4) The seller sends he tax dollars to the government at appointed times.

Retail sales tax also known as Provincial Sales Tax (PST) is charged by the provincial governments. Tax is usually calculated as a percentage. In this case, British Colombia has PST of 7%. Goods and Services Tax (GST) was introduced in 1991. The tax dollars is charged by the federal government. The GST in British Colombia currently is 5%.

General Journal!

A general journal usually contains the date, particulars (in this case the debit and credit account entries) and the debit & credit amount. Also contains a brief description after the entries has been listed. Source documents prove the transactions that has been made and it will be recorded in the general journal first, which is why the general journal is also called the book of original entries.

Expanded Ledger!

The new accounts include revenues, expenses and drawings. Revenue is an increase in equity resulting from the sales of services and goods in the business, also known as fees earned or sales. Expenses are the cost that is related to providing these revenues. For example; rent, supplies, wages, furniture and advertisement. Drawings are not included in the income statement as it has no direct relationship with the company/business. It is withdrawals from the business by the owner. These withdrawals represent a decrease in equity.

Income Statements!

Income statements shows the net income or profit of the company. Also organizes new equity accounts into a formal statement. RED stands for revenue, expenses and drawings. The income statement includes the revenue and the expenses. The difference between the two amount results in a net income if it increase in equity or net loss if it decreases in equity. Income statements are used by variety of people including owners, managers, bankers, investors and income tax authorities.

Trial Balance

Trial balance is a listing of account balances in a ledger. Trial balances are used to see if the dollar value of the accounts with debt balances is equal o the dollar value of he accounts with credit balances.

Steps of making a trial balance:
Step 1: Write a heading, trial balance and the date
Step 2: List all the accounts and their balances
Step 3: Place the debit balances in a debit column and the credit balances in a credit column
Step 4: Add up the column
Step 5: Double check if the columns total are the same, if yes then double underline and a rule line on top, if the columns do not add up then try to find your mistake

Debit or Credit?

When you have assets increase it would be debit, a decrease in assets it would a credit. A decrease in liabilities is a debit and an increase in liabilities is a credit. As for owner’s equity or capital it is the same as the liabilities. Debits on the left and credit on the right. The beginning values of liabilities and capital are placed on the right side (credit side) As for assets, the beginning value is placed on the left side (debit side).

Black Friday!

Whether or not you shopped till you dropped, Black Friday is one of those events that gives you the excuse to spend money. Every transaction you made purchasing an item/product, the store will give a receipt. This receipt is a proof that you have made a purchase and it is a source of evidence. This is an example of a source document. A source document is any form of payment evidence. For example, telephone bills, electricity bills and retail receipts. Make sure to hang on to them because they might come in play when a transaction goes wrong!

Equation Analysis Sheet!

We learnt how to set up Equation Analysis Sheets this chapter. Every financial change that could change the financial position is called a business transaction.  Every transaction is to be verified and neatly recorded on the equation analysis sheet. We would write the beginning transaction on the first row and then the transaction. After that row, it would be the new total. Repeated steps.