Chapter 2: Problem 13
A trial balance: a. is a list of accounts with their balances at a given time. b. proves the mathematical accuracy of journalized transactions. c. will not balance if a correct journal entry is posted twice. d. proves that all transactions have been recorded.
Short Answer
Expert verified
The correct answer is: a.
Step by step solution
01
Understanding a Trial Balance
A trial balance is a bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal. The purpose is to ensure that the debit and credit transactions are balanced.
02
Analyzing Option A
Option A states that a trial balance is 'a list of accounts with their balances at a given time.' This is accurate, as a trial balance does provide a list of all account balances at a specific time.
03
Analyzing Option B
Option B claims that a trial balance 'proves the mathematical accuracy of journalized transactions.' While it does check for balance between debits and credits, it does not catch errors such as those from incorrect journal entries or transactions recorded in the wrong accounts.
04
Analyzing Option C
Option C suggests that a trial balance 'will not balance if a correct journal entry is posted twice.' This is incorrect; posting an entry twice will cause both the debit and credit columns to increase by the same amount, keeping them in balance.
05
Analyzing Option D
Option D states that a trial balance 'proves that all transactions have been recorded.' This is not correct since some transactions might not have been recorded at all, or recorded inaccurately, yet the trial balance might still show a balanced result.
06
Conclusion and Selecting the Correct Option
Based on the analysis, option A is the correct choice as it accurately describes a trial balance as a list of accounts with their balances at a specific time.
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Key Concepts
These are the key concepts you need to understand to accurately answer the question.
Bookkeeping
Bookkeeping is the process of recording all financial transactions made by a business. It is the first step in the accounting process and aims to organize daily transactions systematically. This organized record helps in evaluating the financial health of the business at any point in time.
For effective bookkeeping, it is crucial to follow a structured method to maintain records. Every transaction involves at least two accounts and follows the double-entry system. This means that for every debit entry, there must be a corresponding credit entry, ensuring the accounting equation remains balanced.
For effective bookkeeping, it is crucial to follow a structured method to maintain records. Every transaction involves at least two accounts and follows the double-entry system. This means that for every debit entry, there must be a corresponding credit entry, ensuring the accounting equation remains balanced.
- Accurately record each transaction.
- Use a consistent format for entries.
- Ensure regular updating of records.
Ledger Accounts
Ledger accounts are individual records where business transactions are grouped by type. Each account is dedicated to a particular asset, liability, revenue, or expense.
These accounts allow businesses to track specific balances and movements over time, making it easier to analyze financial performance.
When a bookkeeper records a transaction, they update the relevant ledger accounts. This ensures that every financial activity is captured, therefore presenting an accurate picture of the company's financial status.
These accounts allow businesses to track specific balances and movements over time, making it easier to analyze financial performance.
When a bookkeeper records a transaction, they update the relevant ledger accounts. This ensures that every financial activity is captured, therefore presenting an accurate picture of the company's financial status.
- Each ledger account pertains to a specific category like cash, sales, or expenses.
- Debits and credits are entered for each account.
- The sum of debits should equal the sum of credits for all transactions.
Debit and Credit Balances
In bookkeeping, debits and credits are the key components that track increases and decreases in accounts. Each account can either have a debit or credit balance, depending on the type of account.
For asset and expense accounts, increases are represented as debits, while decreases are recorded as credits. Conversely, liability, equity, and revenue accounts increase with credits and decrease with debits.
For asset and expense accounts, increases are represented as debits, while decreases are recorded as credits. Conversely, liability, equity, and revenue accounts increase with credits and decrease with debits.
- A debit balance indicates that the total debits in an account exceed the total credits.
- A credit balance shows that the total credits outweigh the debits.
Mathematical Accuracy of Transactions
Ensuring the mathematical accuracy of transactions is a fundamental goal in bookkeeping. A trial balance helps check the summation of all debits against the credits to confirm they are equal.
However, a trial balance alone cannot detect all types of errors. It can identify arithmetic mistakes, such as an entry error, but may not showcase incorrect or missing transactions. For instance, if the same journal entry is posted twice or an entry is made to the wrong account, the trial balance might still appear balanced.
However, a trial balance alone cannot detect all types of errors. It can identify arithmetic mistakes, such as an entry error, but may not showcase incorrect or missing transactions. For instance, if the same journal entry is posted twice or an entry is made to the wrong account, the trial balance might still appear balanced.
- Reviewing each ledger account carefully can aid in finding and correcting errors.
- Periodic audits and reconciliation processes enhance the accuracy of recorded transactions.
- Ensure that the original entries are recorded correctly to prevent discrepancies.