Assets Liabilities Owners Capital Balance Sheet Assets Debit

Assets, Liabilities & Owner’s Capital Balance Sheet Assets Debit for increase Credit for decrease Normal DEBIT balance Owner’s Capital Debit for decrease Credit for increase Normal CREDIT balance

Drawings Statement of Owner’s Equity Drawings Debit for increase Normal DEBIT balance Credit for decrease

Revenues, Expenses Income Statement Revenues Debit for decrease Expenses Debit for increase Normal DEBIT balance Credit for decrease Credit for increase Normal CREDIT balance

Sample Trial Balance Company Name Trial Balance October 31, 2015 Cash Office supplies Prepaid insurance Equipment Note payable Accounts payable Unearned revenue C. Baird, capital C. Baird, drawings Service revenue Utilities expense Rent expense Debit $ 15, 200 2, 500 600 5, 000 500 4, 000 900 $ 28, 700 Credit $ 5, 000 2, 500 1, 200 10, 000 $ 28, 700

Limitations of a Trial Balance does not confirm: ◦ That all transactions have been recorded, or that ledger is correct Numerous errors may still exist even if the total debits = total credits: ◦ Total debits and total credits may be equal, but may still be posted to the wrong account or in the wrong amount

Locating Errors If trial balance does not balance, then: Step 1: Re-calculate account balances ◦ If still not balanced, proceed to step 2 Step 2: Scan trial balance for errors. Calculate the difference between total debits & credits: If divisible by two, look for entry in wrong column. If divisible by nine, look for transposition errors. Scan to see if an account balance has been omitted for the exact amount of the difference.