LA 5 Flashcards
(12 cards)
Trial balance
An internal control mechanism
A list of general ledger accounts with their corresponding balances or totals at a specific point in time
Provides evidence that debits = credits
The purpose of a trial balance
The trial balance forms part of the accounting cycle and is a prerequisite for completing an entity’s financial statements.
How to detect errors in the TB
+Total the debit & credit columns
+Check for account balances in the wrong column
+Check the posting of subsidiary journals and ledger accounts
+Omitted accounts
+Posting from journal to general ledger
+Recording errors
Errors that will be detected in TB
(Pre-adjustment)
- Different amounts for the same transaction
(R540 debit vs R450 credit) - Casting errors
- Error in carry down/bring down of balances
- Posting from journal to general ledger to TB
- Incorrect recording of transactions
Errors that will NOT be detected in TB
(Post-adjustment)
- Transactions that was omitted completely
(no debit or credit) - Principle errors
(capital vs revenue or expense vs asset) - Compensatory errors
(same amount but different nature) - Duplication of transaction
- Reversal of transactions
- Incorrect recording of transactions
Accrual concept
- Revenues are recognised for the period in which they have been earned, not when they are received
- Expenses are recognised for the period in which they have been incurred, not when they are paid
- Adjustments to revenues and expenses for any accruals and prepayments
Accrued Income
Income receivable
= Asset
Dr Asset
Cr Revenue
Income earned, not yet received
Accrued Expenses
Expenses payable
= Liability
Dr Expense
Cr Liability
Expenses incurred, not yet paid
Income received in advance
= Liability
Dr Revenue
Cr Liability
Income received but not yet earned
Prepaid expenses
= Asset
Dr Asset
Cr Expense
Expense paid but not yet incurred
Statement of financial position section
assets (dr)
liabilities (cr)
equity (cr)
e.g.
Capital E
Drawings E (dr)
Buildings A
Inventory A
Debtors control A
Bank A
Creditors control L
Loan L
Expenses payable L
Prepaid expense A
Income receivable A
Income received in advance L
Nominal accounts section
Income (cr)
expenses (dr)
Sales I
Sales returns E
Purchases E
Purchases returns I
Interest expense E
Salaries and wages E
Telephone E
