BITS Pilani

presentation
BITS Pilani Krishna M
Economics and Finance
Pilani Campus

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 BITS Pilani
Pilani Campus

FIN ZC415 / MBA ZC415

Financial and Management Accounting
Lecture 5 (Trial Balance)
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 Outline of the Presentation

Trial Balance

 Format of trial balance

 Preparation of trial balance
 Errors in preparation of trial balance

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 Outline of the last lecture

Ledger Posting

 Meaning and format of account – T accounts

 How to post journal entries into ledger?

 Posting Journal entries into Ledgers
 Balancing of accounts and rules

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 The Trial Balance

Trial Balance
 A list of accounts and their balances at a given time.

 Accounts are listed in the order in which they appear

in the ledger.

 Purpose is to prove that debits

equal credits.

 May also uncover errors in

journalizing and posting.

 Useful in the preparation of

financial statements.
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 Using the example (Lecture 4)

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 Transaction Analysis

On August 1, ITC invested Rs5,000 in the business

as owner.

Cash Paid-in Capital

5,000 5,000

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 Transaction Analysis

On August 1, the firm paid Rs750 rent for the

month of August.

Cash Prepaid Expenses

5,000 750 750

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 Transaction Analysis

The firm borrowed Rs4,000 from a bank on a 9 percent

note payable, with interest payable quarterly and the
principal due in full at the end of two years.

Cash Notes Payable

4,000
5,000 750
4,000

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 Transaction Analysis

Equipment costing Rs7,200 was purchased for cash.

The expected life of the equipment was 10 years.

Cash Equipment, at Cost

5,000 750 7,200

4,000 7,200

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 Transaction Analysis

An Initial Inventory of Pizza ingredients and boxes was

purchased on credit for Rs800 .

Inventory Account payable

800 800

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 Transaction Analysis

In August Pizza sales were Rs12000, all for cash.

Sales revenue (a temporary account)

Cash Sales revenue

5,000 750 12,000

4,000 7,200
12,000

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 Transaction Analysis

During August the pizzeria’s employees were paid

Rs3000 in wages
Wage expense (a temporary account)

Cash Wage expense

5,000 750 3,000

4,000 7,200
12,000 3,000

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 Transaction Analysis

During the month, an additional Rs5750 of ingredients

and boxes was purchased on credit.

Inventory Account payable

800 800
5750 5750

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 Transaction Analysis

August sales consumed Rs6000 of ingredients and boxes.

Inventory Cost of goods sold

800 6000 6000
5750

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 Transaction Analysis

At the end of the month, bills for various utilities used in

August were received, totaling Rs450.

Accounts Payable Utilities Expenses

800 450
5750
450

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 Transaction Analysis

During the month, Rs4800 of accounts payable was paid.

Cash Accounts payable

5,000 750 4800 800

4,000 7,200 5750
450
12,000 3,000
4800

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 Transaction Analysis

On August 13, the firm catered a party for a fee of Rs200.

Because the customer was a friend of the company, the
customer was told that payment could be made later in the
month
Sales revenue Accounts receivable
12000 200
200

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 Transaction Analysis

On August 29, a check was received from the company's

friend for the party of August 13

Cash Accounts receivable

5,000 750 200 200

4,000 7,200
12,000 3,000
200 4800

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 Balancing an Account

Cash
Balance -0- 750
5,000 7,200
4,000 4,800
200 3,000
12,000 15750.
5,450 21,200

Balance 5,450

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 Balancing an Account

Account Receivable
Transaction 200 200

Balance 00

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 Balancing an Account

Inventory
Transaction 800 6000
5,750

Balance 550

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 Balancing an Account

Prepaid expense
Transaction 750

Balance 750

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 Balancing an Account

Equipment at cost
Transaction 7200

Balance 7200

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 Balancing an Account

Accounts payable
Transaction 4800 800
5750
450

Balance 2200

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 Balancing an Account

Notes payable
Transaction 4000

Balance 4000

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 Balancing an Account

Paid-in capital
Transaction 5000

Balance 5000

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 Balancing an Account

Sales revenue
Transaction 12000
200

Balance 12200

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 Balancing an Account

Cost of goods sold

Balance 6000

Balance 6000

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 Balancing an Account

Wage expense
Wage expense 3000

Balance 3000

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 Balancing an Account

Utility expense
Balance 450

Balance 450

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 The Trial Balance (Format)
ITC.
Trial Balance
As of August 31 Balance
Debit Credit
Cash……………………………………………………. Rs 5,450
Accounts receivable……………………………………. -0-
Inventory……………………………………………….. 550
Prepaid expenses……………………………………….. 750
Equipment, at cost……………………………………… 7,200
Accounts payable………………………………………. Rs 2,200
Notes payable………………………………………….. 4,000
Paid-in capital………………………………………….. 5,000
Beginning retained earnings -0-
Sales revenue…………………………………………... 12,200
Cost of sales……………………………………………. 6,000
Wage expense………………………………………….. 3,000
Utilities expense……………………………………….. 450
3-32 Totals……………………………………………….. Rs23,400 Rs23,400
 Assuming No Adjustments

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 The Trial Balance
ITC.
Income Statement
For the period ended August 31

Sales revenue…………………………………………... 12,200

Cost of sales……………………………………………. 6,000
Gross Profit 6200

Operational profit
Wage expense………………………………………….. 3,000
Utilities expense……………………………………….. 450
Earnings before income tax (EBIT) 2750

Net Profit 2750

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 Real Profit and loss statement

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 From the Trial Balance (space)
ITC.
Balance Sheet
August 31

Current assets
Cash……………………………………………………. Rs 5,450
Inventory……………………………………………….. 550
Prepaid expenses……………………………………….. 750
Non-current assets
Equipment, at cost……………………………………… 7,200
Total Assets 13950

Accounts payable………………………………………. 2,200

Notes payable………………………………………….. 4,000
Total Liabilities

Paid-in capital………………………………………….. 5,000

Retained Earnings…………………………………………... 2750
Total Liability + SE 13950
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 Real Profit and loss statement

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 Homework -1

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 Ford Corporation
Adjusted Trail Balance data
December 31, 2009
The following data were taken from the adjusted trial balance of Ford Corporation.
Prepare a classified balance sheet at December 31, 2009. (Ignore income taxes)

Accounts Payable Rs Note payable (due in 5 40,000

12,000 years)
Accounts receivable 13,000 Office supplies 1,000
Accumulated Depreciation - 6,000 Prepaid insurance 3,000
Building
Accumulated Depreciation- 9,000 Retained earnings (January 23,000
Furniture and Fixtures 1, 2009)
Building 60,000 Salaries payable 2,000
Common Stock 40,000 Service revenue 85,000
Cash 24,000 Salaries expense 28,000
Copyrights 22,000 Utilities expense 2,000
Dividends Declared 12,000 Depreciation expense 5,000
Furniture and Fixtures 15,000 Insurance expense 2,000
Land 25,000 Office supplies expense 1,000
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Interest expense 4,000
 Ford Corporation
Balance sheet
31-Dec-09
Current assets Current liabilities
Cash 24000 Account payable 12000
Account receivable 13000 Salaries payable 2000
Office supplies 1000 Total current L 14000
Prepaid insurance 3000 Long-term liabilities
Total CA 41,000 Notes payable 40,000
Total Liabilities 54000
Non-current assets
Land 25000 Stockholders' equity
Building 60000 Common stock 40,000

Less accumilated depreciation -6000 Retained earnings 54000

Furniture and fixtures 15000 Total SE 94,000

Less accumilated depreciation -9000

Copyrights 22000
Total assets 148000 Total L and SE 148000

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