The procedure for preparing a trial balance is relatively simple. However, in manual systems if the trial balance does not balance, locating an error can be time-consuming, tedious, and frustrating. The error(s) generally results from mathematical mistakes, incorrect postings, or simply transcribing the data incorrectly.
What happens if you are faced with a trial balance that does not balance?
First determine the amount of the difference between the two columns of the trial balance. After this amount is known, the following steps are often helpful:
- If the error is $1, $100, or $1,000, re-add the trial balance columns and recomputed the account balances.
- If the error is divisible by two, scan the trial balance to see whether a balance equal to half the error has been entered in the read the entry »
As stated on page 9’l, revenues received in cash and recorded as liabilities before they are earned are called unearned revenues. Such items as rent, magazine subscriptions, and customer deposits for future service may result in unearned revenues. Airlines such as United, American, and Delta treat receipts from the sale of tickets as unearned revenue until the flight service is provided. Similarly, tuition received prior to the start of a semester, as in the opening story about Arizona State University, is considered to be unearned revenue. Unearned revenues are the opposite of prepaid expenses. Indeed, unearned revenue on the books of one company is likely to be a prepayment on the books of the company that has made the advance payment. For example, if identical accounting periods are assumed, a landlord will have unearned rent revenue when a tenant has prepaid rent.
When the payment is received for services to be provided in a future accounting period, an unearned revenue (a liability) account should be credited to recognize the obligation that exists. Unearned revenues are subsequently earned through rendering service to a customer. During the accounting period it may not be practical to make daily recurring entries as the revenue is earned. In such
The second category of adjusting entries is accruals. Adjusting entries for accruals are required to record revenues earned and expenses incurred in the current ‘‘accounting period that have not been recognized through daily entries. If an Prepare adjusting accrual adjustment is needed, the revenue account (and the related asset account) entries for accruals. And/or the expense account (and the related liability account) is understated.
Thus, the adjusting entry for accruals will increase both a balance sheet and an income statement account.
Accrued Revenues As explained on page 91, revenues earned but not yet received in cash or re- corded at the statement date are accrued revenues. Accrued revenues may accumulate (accrue) with the passing of time, as in the case of interest revenue and rent revenue. Or they may result from services that have been performed but neither billed nor collected, as in the case of commissions and fees. The former are unrecorded because the earning of interest and rent does not involve daily transactions; the latter may be read the entry »
