THE COSTS
THE TRIAL BALANCE

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       After all transactions have been posted from the journal to the ledger, it is a good practice to prepare a trial balance.  A trial balance is simply a listing of the ledger accounts along with their respective debit or credit balances. The trial balance is not a formal financial statement, but rather a self-check to determine that debits equal credits.  Below is the trial balance prepared from the general ledger of America Corporation.

      
    AMERICA CORPORATION
    Trial Balance
    January 31, 2010




    Debits
    Credits
    Cash
    $26,300

    Accounts Receivable
    3,200

    Land
    1,500

    Accounts Payable

    $500
    Notes Payable

    10,000
    Capital Stock

    25,000
    Service Revenue

    12,000
    Advertising Expense
    2,000

    Utility Expense
    1,000
           
    Totals
    $47,500
    $47,500

    DEBITS EQUAL CREDITS:  Since each transaction was journalized in a way that insured that debits equaled credits, one would expect that this equality would be maintained throughout the ledger and trial balance.  If the trial balance fails to balance, an error has occurred and must be located.  It is much better to be careful as you go, rather than having to go back and locate an error after the fact.  You should also be aware that a "balanced" trial balance is no guarantee of correctness.  For example, failing to record a transaction, recording the same transaction twice, or posting an amount to the wrong account would produce a balanced (but incorrect) trial balance.

    FINANCIAL STATEMENTS FROM THE TRIAL BALANCE:  About additional adjustments may be needed to prepare a truly correct and up-to-date set of financial statements; but, for now, you can probably see that a tentative set of financial statements could be prepared based on the trial balance.  The basic process is to transfer amounts from the general ledger to the trial balance, then into the financial statements:

    In reviewing the following financial statements for America, notice that blue italics were used to draw attention to the items taken directly from the trial balance above.  The other line items and amounts simply relate to totals and derived amounts within the statements.  These statements would appear as follows:

    Trial Balance



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