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Case Study - Trial Balance

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Transcript

Hello, welcome back. I'm Justin light from thick numbers. And in this lecture we're going to be talking about the trial balance. So the trial balance is really the ultimate place of where we want to get to once we've been through all of our transactions. We've created general journals or worksheets, we've put them through into T accounts. And then we want to actually have a final position of that business at the at the end of that particular period.

And what this what this trial balance actually represents is, if you remember back to our chart of accounts, we had, we had a range of these chart of accounts that were a standard chart of accounts that never changed. They're always the same. And so we have the chart of accounts, which goes down the page. And then what we're actually doing is taking the closing balance Every single account and we're actually putting this is either a debit closing balance or credit closing balance and you remember the assets are always debit balances unless they contrast since the liabilities, credit balances. owner's equity, like share capital credit. retained earnings can be, it should be credit if it's in profit, but it can be debit if it's in a loss position, your sales revenue, credit balances and you got all your expenses which always debits Okay, so what we actually need to do is you actually need to either go to your worksheet and take each one of these individual accounts and work out whether it's a debit or credit and put it into trial balance.

And the whole aim of this is to get the full trial balance the debit side to equal the credit side and that that is your check that you've actually captured everything. So you cannot Take the worksheet method and play each one of these individual accounts one by one. Remember, just remembering you have to remember that for an asset, it should be a debit. Unless it's a contra asset or a liability is a credit, or owner's equity is credit, or debit for expenses, or a dividend. The other method is to actually go to your T accounts. And again, it's the same sort of thing, you look at the closing balance for each individual account.

So that's the cash at Bank, which is $20,350. And then that ends up becoming your closing balance at the end of the period for the cash back. So you can see that both methods the worksheet method or the ticket method, get to the same closing balance. They both end up getting to the same position of $20,350 And really it's just this is the whole trick is really to make sure that you've been very methodical in your approach, go through each individual account, make sure you've captured the closing balance. And if for some reason the debit side doesn't equal the credit side, there's there's really one of there's only really a couple of reasons for that. Now, the first reason is that you, when you were translating the figures across, you may have missed one of the figures, that's always a possibility, you just just missed an account.

Number two, you could have accidentally put it on the wrong side. So let's say that we accidentally put this instead of putting it on the debit side, we put it on the credit side, and you can see that for some of this you can see that this will actually throw out gets out. All right. So the way to fix that is to work out which accounts have actually been put on the wrong side and to put it back, and therefore, that's how you're going to get to the correct balance. The other the other possibility is that when you were working through your general journals, you may have accidentally put the wrong amount on one of the sites. So for example, let's say that was one of the sell transactions for $10,000.

You put $10,000 as accounts receivable, or say you put $10,000 of sales revenue and you put on an eye for some reason for $1,000. As accounts receivable, maybe you just accidentally put one less zero than you should have. So sometimes it's during the general journal process that you actually made the mistake. So really, look, it's just a matter of going back and working out sort of tracing steps, one step at a time to actually work out where you've made the error. If trial balances and balancing. But if you follow the process and you've got your your debits equal your credits on all your journals, you've copied all figures off correctly and you've correctly put them as a debit or credit, you should very easily be getting a balanced trial balance.

Alright, so in the next lecture, we'll be actually starting to look at adjusting entries. And we'll be then trying to apply these adjusted entries to this original trial balance to then come up with an adjusted trial balance. We'll see in the next

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