Question

Correcting errors in a trial balance

The trial balance of Beautiful Tots Child Care does not balance.

Account Title Debit Credit

Office Supplies 1,000

Cash 7,900

Accounts Receivable 6,700

Prepaid Insurance 300

Equipment 91,500

Accounts Payable 3,400

Notes Payable 45,000

Common Stock 57,000

Dividends 5,000

Service Revenue 12,350

Rent Expense 750

Salaries Expense 4,400

Total Balance \( 117,550 \) 117,750

The following errors are detected:

a. Cash is understated by \(1,500.

b. A \)4,100 debit to Accounts Receivable was posted as a credit.

c. A \(1,400 purchase of office supplies on account was neither journalized nor posted.

d. Equipment was incorrectly transferred from the ledger as \)91,500. It should have been transferred as \(83,000.

e. Salaries Expense is overstated by \)700.

f. A \(300 cash payment for advertising expense was neither journalized nor posted.

g. A \)200 cash dividend was incorrectly journalized as \(2,000.

h. Service Revenue was understated by \)4,100.

i. A 12-month insurance policy was posted as a $1,900 credit to Prepaid Insurance. Cash was posted correctly.

Prepare the corrected trial balance as of August 31, 2018. Journal entries are not required.

Short answer

Rent expense is the cost of using someone else’s property and the required corrected trial balance is prepared in step 2.

Step-by-step solution

Definition of rent expense

The rent expense is defined as the cost incurred by the business for using the property owned by some other individual or business.

Preparation of corrected Trial Balance

​

Beautiful Tots Child Care
Corrected Trial Balance
August 31, 2018
Account Title	Calculations	Debit ($)	Credit ($)
Cash	7,900+1,500-300+1,800	$10,900
Accounts Receivables	6,700+8,200	$14,900
Office Supplies	1,000+1,400	$2,400
Prepaid Insurance	300+3,800	$4,100
Equipment		$83,000
Accounts Payable	3,400+1,400		$4,800
Notes Payable			$45,000
Common Stock			$57,000
Dividends	5,000-1,800	$3,200
Service Revenue	12,350+4,100		$16,450
Salaries Expense	4,400-700	$3,700
Rent Expense		$750
Advertising Expense		$300
Total		$123,250	$123,250

Computation of correction

$$\begin{gathered} \mathbf{Cash}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Understated}\mathbf{-}\mathbf{Advertisingexpense}\mathbf{+}\mathbf{Dividends} \\ \mathbf{=}\mathbf{7}\mathbf{,}\mathbf{900}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{500}\mathbf{-}\mathbf{300}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{800} \\ \mathbf{=}\mathbf{10}\mathbf{,}\mathbf{900} \end{gathered}$$

$$\begin{gathered} \mathbf{AccountsReceivables}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{7}\mathbf{,}\mathbf{700}\mathbf{+}\mathbf{8}\mathbf{,}\mathbf{200} \\ \mathbf{=}\mathbf{\$}\mathbf{14}\mathbf{,}\mathbf{900} \end{gathered}$$

$$\begin{gathered} \mathbf{OfficeSupplies}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{1}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{400} \\ \mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{400} \end{gathered}$$

$$\begin{gathered} \mathbf{PrepaidInsurance}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{300}\mathbf{+}\mathbf{3}\mathbf{,}\mathbf{800} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{100} \end{gathered}$$

$$\begin{gathered} \mathbf{AccountsPayable}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{3}\mathbf{,}\mathbf{400}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{400} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{800} \end{gathered}$$

$$\begin{gathered} \mathbf{Dividends}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{5}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{1}\mathbf{,}\mathbf{800} \\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{200} \end{gathered}$$

$$\begin{gathered} \mathbf{ServiceRevenue}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{12}\mathbf{,}\mathbf{350}\mathbf{+}\mathbf{4}\mathbf{,}\mathbf{100} \\ \mathbf{=}\mathbf{\$}\mathbf{16}\mathbf{,}\mathbf{450} \end{gathered}$$

$$\begin{gathered} \mathbf{RentExpense}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{4}\mathbf{,}\mathbf{400}\mathbf{-}\mathbf{700} \\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{700} \end{gathered}$$