Let's take a look to see how we create our trial balance. Here we have a blank trial balance. Our first step is to put in the title who, what, when. Notice we have three columns, the account column, the debit column, and the credit column. You list the accounts in chart of account order, like we spoke about in the previous slide. First, notice we have all of the asset accounts, then we have liability account, accounts payable. Then we have our equity accounts, common stock, and dividends, then we have service revenue and then our expenses. Now what we need to do is take a look at the ending balances from the general ledger that we prepared last week. These ending balances are what's going to go on the trial balance. Notice the ending balance for cash is a debit for $5,850. Notice, on the trial balance, we see cash having a debit balance of $5,850 as well. I'm going to scroll back to the previous screen. You're going to see accounts receivable ending balance 2,000, supplies ending balance 7,500, office equipment ending balance 17,000. We see here on the trial balance, that's exactly what we have. We scroll back to the accounts payable ending balance of 4,500, common stock ending balance credit 25,000, service revenue credit 8,200, and the ending balance for all of the expense accounts, which again as we know, the ending balance should be the increase side ,also known as the normal balance side. We input all of those ending balances into the trial balance. That is step 3. Step 4, we will total the debit column 37,700. Step 5, we will total the credit column 37,700. Look at that. We compare the totals. They are equal. We did our job. Let's take a look at some potential errors in the accounting records. A trial balance may be in balance, but there still could be errors in the accounting records. Why? A transaction may have not been recorded correctly in the journal. The transaction may have not been posted correctly in the ledgers. Incorrect accounts may have been utilized in the recording or posting process. If the trial balance does not balance, the errors could arise from any of the following, a miscalculation when summing your debits or credits, putting the ending balance from a ledger account in the incorrect debit or credit column or a transaction may not have been recorded in the journal and or posted in the ledgers correctly. If there is an error due to an error in the accounting records, a correcting entry must be made. How to record a correcting entry. Take a look here. Telephone expense was debited for $2,100 and cash was credited for 2,100. However, you notice that there was an error. The telephone expense account was debited when it should have been rent expense. How do we create that adjusting entry? Now we will debit rent expense and credit out telephone expense, and then of course we will post those entries as well. Now you'll get to go ahead and do an activity to practice what you learned. I look forward to seeing you for week 4, where we're going to talk about the differences between cash accounting and accrual accounting. Have a great week.
