Question

The Green Thumb Gardener is a retail store that sells plants, soil, and decorative pots. On December 31, 2019, the firm's general ledger contained the accounts and balances that appear below.

ACCOUNTS AND BALANCES
Cash	$	5,200		Dr.
Accounts Receivable		2,100		Dr.
Allowance for Doubtful Accounts		47		Cr.
Merchandise Inventory		10,800		Dr.
Supplies		1,150		Dr.
Prepaid Advertising		960		Dr.
Store Equipment		7,800		Dr.
Accumulated Depreciation—Store Equipment		1,450		Cr.
Office Equipment		1,300		Dr.
Accumulated Depreciation—Office Equipment		230		Cr.
Accounts Payable		2,575		Cr.
Social Security Tax Payable		380		Cr.
Medicare Tax Payable		83		Cr.
Federal Unemployment Tax Payable
State Unemployment Tax Payable
Salaries Payable
Beth Argo, Capital		22,927		Cr.
Beth Argo, Drawing		19,500		Dr.
Sales		87,548		Cr.
Sales Returns and Allowances		1,050		Dr.
Purchases		44,900		Dr.
Purchases Returns and Allowances		380		Cr.
Rent Expense		5,500		Dr.
Telephone Expense		540		Dr.
Salaries Expense		13,600		Dr.
Payroll Taxes Expense		1,220		Dr.
Income Summary
Supplies Expense
Advertising Expense
Depreciation Expense—Store Equipment
Depreciation Expense—Office Equipment
Uncollectible Accounts Expense

ADJUSTMENTS

a.–b. Merchandise inventory on December 31, 2019, is $11,821.

During 2019, the firm had net credit sales of $30,000; the firm estimates that 0.6 percent of these sales will result in uncollectible accounts.

On December 31, 2019, an inventory of the supplies showed that items costing $250 were on hand.

On October 1, 2019, the firm signed a six-month advertising contract for $960 with a local newspaper and paid the full amount in advance.

On January 2, 2018, the firm purchased store equipment for $7,800. At that time, the equipment was estimated to have a useful life of five years and a salvage value of $550.

On January 2, 2018, the firm purchased office equipment for $1,300. At that time, the equipment was estimated to have a useful life of five years and a salvage value of $150.

On December 31, 2019, the firm owed salaries of $1,780 that will not be paid until 2020.

On December 31, 2019, the firm owed the employer’s social security tax (assume 6.2 percent) and Medicare tax (assume 1.45 percent) on the entire $1,780 of accrued wages.

On December 31, 2019, the firm owed federal unemployment tax (assume 0.6 percent) and state unemployment tax (assume 5.4 percent) on the entire $1,780 of accrued wages.

Required:

Prepare the Trial Balance section of a 10-column worksheet. The worksheet covers the year ended December 31, 2019.

Enter the adjustments above in the Adjustments section of the worksheet.

Complete the worksheet.

Analyze:
By what amount were the assets of the business affected by adjustments?

Answer 1

A trial balance is a bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal. A company prepares a trial balance periodically, usually at the end of every reporting period. The general purpose of producing a trial balance is to ensure the entries in a company's bookkeeping system are mathematically correct.

Next Up

1. Double Entry

2. Debit

3. Ledger Balance

4. Debit Memorandum

BREAKING DOWN 'Trial Balance'

Preparing a trial balance for a company serves to detect any mathematical errors that have occurred in the double-entry accounting system. If the total debits equal the total credits, the trial balance is considered to be balanced, and there should be no mathematical errors in the ledgers. However, this does not mean there are no errors in a company's accounting system. For example, transactions classified improperly or those simply missing from the system could still be material accounting errors that would not be detected by the trial balance procedure.

Ledger Accounts

Companies initially record their business transactions in bookkeeping accounts within the general ledger. Depending on the kinds of business transactions that have occurred, accounts in the ledgers could have been debited or credited during a given accounting period before they are used in a trial balance worksheet. Furthermore, some accounts may have been used to record multiple business transactions. As a result, the ending balance of each ledger account as shown in the trial balance worksheet is the sum of all debits and credits that have been entered to that account based on all related business transactions.

Debits and Credits

At the end of an accounting period, the accounts of asset, expense or loss should each have a debit balance, and the accounts of liability, equity, revenue or gain should each have a credit balance. However, certain accounts of the former type may have also been credited and certain accounts of the latter type may have also been debited during the accounting period when related business transactions reduce their respective accounts' debit and credit balances, an opposite effect on those accounts' ending debit or credit balances. On a trial balance worksheet, all the debit balances form the left column, and all the credit balances form the right column, with the account titles placed to the far left of the two columns.

Undetectable Errors

After all the ledger accounts and their balances are listed on a trial balance worksheet in their standard format, add up all debit balances and credit balances separately to prove the equality between total debits and total credits. Such uniformity guarantees there are no unequal debits and credits that have been incorrectly entered during the double-entry recording process. However, a trial balance cannot detect bookkeeping errors that are not simple mathematical mistakes. If equal debits and credits are entered into the wrong accounts, a transaction is not recorded or offsetting errors are made with a debit and credit at the same time, a trial balance would still show a perfect balance between total debits and credits.

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