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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

(L07) (Cash to Accrual Basis) Jill Accardo, M.D., maintains the accounting records of Accardo Clinic on a cash basis. During 2017, Dr. Accardo collected 142,000fromherpatientsandpaid55,470 in expenses. At January 1, 2017, and December 31, 2017, she had accounts receivable, unearned service revenue, accrued expenses, and prepaid expenses as follows. (All long-lived assets are rented.)

January 1, 2017, December 31,2017

Account receivable 9,25015,927

Unearned service revenue 2,8404,111

Accrued expenses 3,4352,108

Prepaid expenses 1,9173,232

Instructions:

Prepare a schedule that converts Dr. Accardo’s “excess of cash collected over cash disbursed” for the year 2017 to net income on an accrual basis for the year 2017.

E3-8 (L03) EXCEL (Adjusting Entries) Andy Roddick is the new owner of Ace Computer Services. At the end of August2017, his first month of ownership, Roddick is trying to prepare monthly financial statements. Below is some information relatedto unrecorded expenses that the business incurred during August.1. At August 31, Roddick owed his employees 1,900inwagesthatwillbepaidonSeptember1.2.Attheendofthemonth,hehadnotyetreceivedthemonth′sutilitybill.Basedonpastexperience,heestimatedthebillwouldbeapproximately600.3. On August 1, Roddick borrowed 30,000fromalocalbankona15−yearmortgage.Theannualinterestrateis8117 covering August charges is unpaid at August 31.InstructionsPrepare the adjusting journal entries as of August 31, 2017, suggested by the information above.

On January 1, 2017, Norma Smith and Grant Wood formed a computer sales and service company in Soapsville, Arkansas, by investing \(90,000 cash. The new company, Arkansas Sales and Service, has the following transactions during January.

1. Pays \)6,000 in advance for 3 months’ rent of office, showroom, and repair space.

2. Purchases 40 personal computers at a cost of 1,500each,6graphicscomputersatacostof2,500 each, and 25 printers at a cost of \(300 each, paying cash upon delivery

3. Sales, repair, and office employees earn \)12,600 in salaries and wages during January, of which \(3,000 was still payable at the end of January.

4. Sells 30 personal computers at \)2,550 each, 4 graphics computers for 3,600each,and15printersfor500 each; 75,000isreceivedincashinJanuary,and23,400 is sold on a deferred payment basis.

5. Other operating expenses of 8,400areincurredandpaidforduringJanuary;2,000 of incurred expenses are payable at January 31.

Instructions

  1. Using the transaction data above, prepare (1) a cash-basis income statement and (2) an accrual-basis income statement for the month of January.
  2. Using the transaction data above, prepare (1) a cash-basis balance sheet and (2) an accrual-basis balance sheet as of January 31, 2017.
  3. Identify the items in the cash-basis financial statements that make cash-basis accounting inconsistent with the theory underlying the elements of financial statements.

Santo Design was founded by Thomas Grant in January 2011. Presented below is the adjusted trial balance as of December 31, 2017.

SANTO DESIGN

ADJUSTED TRIAL BALANCE

DECEMBER 31, 2017


Dr.

Cr.

Cash

\( 11,350

Accounts Receivable

21,500

Supplies

5,000

Prepaid Insurance

2,500

Equipment

60,000

Accumulated Depreciation—Equipment

\) 35,000

Accounts Payable

5,000

Interest Payable

150

Notes Payable

5,000

Unearned Service Revenue

5,600

Salaries and Wages Payable

1,300

Common Stock

10,000

Retained Earnings

3,500

Service Revenue

61,500

Salaries and Wages Expense

11,300

Insurance Expense

850

Interest Expense

150

Depreciation Expense

7,000

Supplies Expense

3,400

Rent Expense

4,000

\(127,050

\)127,050

Instructions

a. Prepare an income statement and a statement of retained earnings for the year ending December 31, 2017, and an unclassified balance sheet at December 31.

b. Answer the following questions.

1.If the note has been outstanding for 6 months, what is the annual interest rate on that note?

2.If the company paid $17,500 in salaries in 2017, what was the balance in Salaries and Wages Payable on December 31, 2016?

The purpose of presenting comparative information in the

transition to IFRS is:

(a) to ensure that the information is a faithful representation.

(b) to be in accordance with the Sarbanes-Oxley Act.

(c) to provide users of the financial statements with information on GAAP in one period and IFRS in the other period.

(d) to provide users of the financial statements with information on IFRS for at least two periods.
See all solutions

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