Case Study: Trial Balance Worksheet

1. Case Study: Legacy Realty

The subject company for our case study is called Legacy Realty. Legacy Realty is a sole proprietorship, which is a type of company that is owned by one single individual, and where that individual and the business are legally treated as the same.

The purpose of Legacy Realty as a business is to own, lease, and manage its own rental properties. It purchases houses and condominiums and leases them out to tenants. They also perform their own management of their units, making repairs, performing maintenance, and collecting rent. Legacy Realty is located in Washington, D.C., and they have a small staff of five people.

Legacy Realty needs a trial balance worksheet to serve as a check for accuracy for the accounting department. It can help Legacy Realty to identify errors or inconsistencies that happened during the journalizing and posting process. Using the trial balance worksheet, they can make sure that their debits and credits are equal and in balance. They can also use it to identify any balances that seem incorrect. The trial balance worksheet is used for internal analysis only; it is not provided to external users.

2. Case Study: Trial Balance Worksheet

Let's jump right in and start preparing a trial balance worksheet.

2a. Trial Balance

Here is the trial balance worksheet, starting with the trial balance. The trial balance provides a listing of all the general ledger accounts, as well as the balances within those accounts, whether it's a debit balance or a credit balance:

• Asset accounts, listed from most liquid to least liquid.
• Liability accounts, listed from short-term to long-term.
• Equity accounts
• Revenue accounts
• Expense accounts

Note that assets and expenses naturally have a debit balance, while liabilities, equity, and revenue naturally have a credit balance. As you can see, this company has cash on hand, as well as some receivables. They have purchased some buildings. They have accounts payable, so they owe some money. They also have notes payable, so they owe some money to a bank. Lastly, it appears that they have earned $600,000 in revenue, and have paid several types of expenses.

2b. Adjustments

Now that we have the trial balance, we can make the adjustments:

(a) Reduce the supplies and record supplies expense.

(b) Adjust the prepaid insurance and recognize insurance expense

(c) Record depreciation on the fixed assets.

(d) Correct revenue recognition to account for incorrectly recognizing some revenue.

(e) Accrue for some salaries owed to employees--a $25,000 credit to accounts payable and a $25,000 debit to salaries expense.

2c. Adjusted Trial Balance

So, we started with the trial balance and made adjustments to match revenues and expenses with the correct period, as well as to correct any errors or omissions. Now we can prepare the adjusted trial balance, which is simply the trial balance adjusted for all the adjustments that were made. Once we have the adjusted trial balance, we can use this information to prepare the financial statements.