Source: Instrumental “Drops of H2O ( The Filtered Water Treatment )" by J.Lang (feat. Airtone),” Creative Commons, http://ccmixter.org/files/djlang59/37792
Hey everyone, and welcome to our video. Today, a case study on the trial balance worksheet. So, what's today's video all about?
Well, we're going to look at our subject company, which is a Legacy Realty. And we're going to talk a little bit about the company itself. And then we're also going to talk about the trial balance worksheet and why our company needs to have the trial balance worksheet.
And then we're going to do a case study walking through a trial balance worksheet for our subject company Legacy Realty. But first let's learn a little bit about this company. So, Legacy Realty-- what type of company is Legacy Realty? Well, they're a sole proprietorship, meaning that it's a type of company that is owned by a single individual, and the individual and the business are legally treated as the same.
Now, what does the company do? What's its business purpose? They own, lease, and manage houses and condominiums, and then they rent them out to tenants.
So they purchase house and condominiums, lease them out to tenants, perform their own management. They make repairs, perform maintenance, and collect rent. Where's the business located? It's located in Washington DC, and they have a small staff of five people.
So now, does our company need a trial balance worksheet? Well, the simple answer is, yes. They do need a trial balance worksheet.
Well, why do we need that? Well, the trial balance an the trial balance worksheet serves as a check for accuracy for the accounting department. It can help us identify errors or inconsistencies that happened during the journalizing and posting process.
We can make sure that our debits and our credits are equal, make sure those aren't out of balance. And we can use it to identify any balances that seem incorrect. So we use it for internal analysis. This is for internal use only. It's not provided to external users.
So we need our trial balance worksheet to make sure that we've identified any inconsistencies and that our accounting information makes sense. So now we want to prepare a trial balance worksheet. So let's go ahead and jump right in and start preparing a trial balance worksheet. So follow me.
OK, everyone. So what we have in front of us here is our trial balance worksheet, starting with our trial balance. Now, what the trial balance provides us is a listing of all of our general ledger accounts as well as the balances within those accounts and lets us know whether it's a debit balance or a credit balance. So that's what our trial balance is.
So it starts with our assets, which we have here. Again, assets are most liquid to least liquid. Then we have our liabilities short term to long term.
Then it will list our equity accounts. Then it will list our revenue and our expense accounts. So in a nutshell, that's what the trial balance provides us, OK?
And so our assets naturally have a debit balance. Our liabilities naturally have a credit balance. Equity naturally has a credit balance.
Revenue is also a natural credit balance. And then our expenses are natural debit balances. So that's what our trial balance is.
So that's our starting point. So you can see this company has cash on hand, some receivables. Looks like they've purchased some buildings.
They have accounts payable, so they owe some money. Notes payable-- so they also owe some money, but to a bank. And it looks like they've earned 600,000 in revenue, and they paid several types of expenses.
So this our trial balance. This is our starting point. So what's next once we have our trial balance? Well, then we can make our adjustments?
So what are the adjustments that we need to make? Well, in this case, we have-- we need to adjust our supplies. So we've reduced our supplies and recorded supplies expense.
Our next adjustment, adjustment B-- we had to adjust our prepaid insurance and recognize insurance expense. We also recorded depreciation on our fixed assets. And then we had to make an adjustment, looks like, to correct our revenue recognition.
So looks like we incorrectly recognized some revenue. And finally, we had to accrue for some salaries-- so the salaries that we owe our employees. You'll see here a $25,000 credit to accounts payable and a $25,000 debit to salaries expense.
So we start with our trial balance, and then we make adjustments to match our revenues and expenses with the correct period as well as correct errors or omissions, which we did have to do in this case. So once we have our trial balance, we have identified all of our adjustments, then we can prepare what we call our adjusted trial balance, which is just our trial balance adjusted for all the adjustments that we just made. And then once we have our adjusted trial balance, that's what we can use to begin to prepare the financial statements.
So this is our trial balance worksheet starting with a listing of all of our general ledger accounts in our travel balance. We make any adjustments that we need to make-- all of our adjusting entries. And then we end up with the adjusted trial balance which we use to create our financial statements.
Great. So now we've prepared our trial balance worksheet. So let's bring it home.
Let's summarize what we talked about today. In a nutshell, we discussed our case study company Legacy Realty. We went through an example of preparing a trial balance worksheet starting with our trial balance.
Then, we make all of our adjustments to our trial balance. And then we end up with our adjusted trial balance which we can then use to create our financial statements. I hope everybody enjoyed this video, and I hope to see you next time.
(00:00-00:43) Introduction and Overview
(00:44-02:14) Case Study Company and Trial Balance Worksheet
(02:15-05:49) Preparing Trial Balance Worksheet
(05:50-06:18) Wrap-up and Conclusion