Trial Balance - Video Tutorials & Practice Problems
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A T-Account helps us find the final balance in an account after making our journal entries. A trial balance shows us the final balance in all of our accounts.
1
concept
Using T-Accounts
Video duration:
6m
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Alright now let's discuss the concept of T. Accounts and the trial balance. Alright so we just went through a whole bunch of transactions in the formation of clutch. Right? But what we saw was a bunch of individual transactions. We saw. Okay this transaction affected cash and accounts receivable. This one we bought some land. This one we paid a dividend, right? But we need to accumulate all those transactions together to get a final balance in an account. So what we're gonna do is we're gonna some all transactions that affected that account to find a final balance. The way we're gonna do that some is we're going to use something called a T. Account. Okay. A. T. Account is where we're gonna take one account such as cash or such as accounts receivable or accounts payable or retained earnings. Any account. And we're going to set it up into this T. Format like you see at the bottom of the screen and on the left hand side of the account we're gonna have debits on the right hand side, we're gonna have the credits to that account. And on the top we're gonna put the title of the account in our example. We're gonna deal with cash. So I'm gonna write cache here. Okay you don't have to put this title of debits and credits onto it once you're familiar with it. I'm doing it right here. Just so you understand that these are the debits and the credits. Okay so throughout the clutch example we had multiple transactions that affected cash, right? We went through different transactions johnny clutch. Put money into the company. We bought land. We got money from our customers. We bought supplies or this and that whatever it was we spent. We we received cash and we paid cash, right? So we want to find the final balance in the cash account. Okay? So if you go back, you're gonna see that in journal entry. A. B. E. F. And G. Back in our clutch tutoring examples. We were affecting cash right? There was going to be either a debit or a credit to cash in those examples. So what we wanna do is we want to bring all of that information into our T. Account for cash. Okay. So let's go ahead and do that right now. I've gone through already and I got the numbers. But I want you to go back, Go shuffle back to the other pages and accumulate all the numbers where you saw cash. Okay. So the first one was in journal entry A We had a debit of 50,000 right? We increased our cash by 50,000 when johnny clutch put the money in the company and then in transaction be right, I'll put in a little a right here. So we know that was transaction a transaction b We purchased land. So we paid out some cash to get land, right? So we're gonna have 40,000 here for be right. And then in transaction E. Um was it E. Yeah. E. I believe is where we paid our um we paid our tutors right? And we paid them $3000 for the month 3000 in transaction E. So that was a credit. Right? And you can just see in the journal entries we already did the hard work. Now we're just going back to the journal entries and say oh that one was a debit. Oh that one was a credit. We're putting it all in one place. All right the next one was in transaction F. We have accounts receivable that were paid to us. Right we received some cash from customers so we would have right here 3500 from F. Right that was a debit. We increased our cash and last but not least in g. We paid $500 to our stockholders in a dividend. Right so we decreased by 500. So the last thing to do is to find our final balance in cash. Right so we do the debits increased cash. The credits decreased cash. Right so all we gotta do is total it up. Right so we're gonna start with 50,000. I'm gonna pull out a. Because it makes this easier. 50,000 plus 3500. Right? Those are our debits. And I'm gonna subtract our credits -40,000 -3,000 -500. And it leaves us with 10,000. Right? And the last thing you do notice how I drew this line here. That means that that is the end of the transactions. Now we want to put the final balance of cash. Cash has a 10,000 balance after we did this right? It was 50,000 plus 3500 minus 43,500 left us with 10,000. Now, is that 10,000? Is that gonna be a debit balance or a credit balance? It's gonna be a debit balance right? Cash cash goes up with debits. And this debit balance of 10,000 signifies that we still have $10,000 in cash after all of these transactions. Right, Johnny Clutch put in 50,000. We did all these things. And we are left with $10,000 in cash. Okay. And it's a debit right? We expect asset accounts to whole a debit balance right? Because they go up with debits. So we would expect there to be some debit balance in cash. If there was a credit balance in cash, that means we have negative cash. That means we have, I don't know, we have less cash than we even have at zero. Right? We're going cash. Um That would be a pretty crazy situation. So We we generally are going to see a debit balance in cash. Okay. So I also wanted to say let's find the final balance in accounts payable. Okay, so we we dealt with cash. We found the final balance in cash. How about the final balance in accounts payable with accounts payable. There was only one transaction and that was transaction. See where we bought supplies. Right? We bought supplies on account and they were $8,000. So over here I'm gonna do accounts payable. And remember a P. Is accounts payable A our accounts receivable. We can use these acronyms and you're gonna see them all the time. So A. P. Is our accounts payable account. And what were the transactions in there? We had a credit of $8000 when we bought those supplies. Right. So this was from a journal entry. C we increased by 8000 and that was it. There was nothing else. There were no other transactions. We didn't pay out any of this to decrease the balance. It sat at 8000. So what you would do you would just draw your line. You would total it up. Which there's nothing to total here. And you'd be left with 8000. Right. And it's a credit balance right? We have 8000. There's more credits than debits. So it stays as a credit. And that makes sense. Right. Accounts payable is a liability account. So we would expect it to have a credit balance. Right liabilities go up with credits. So we would expect there if there's gonna be a liability account that it would have a credit balance. Alright. So let's go ahead and pause here and then we'll move on in the next video
2
concept
Constructing a Trial Balance
Video duration:
6m
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Alright. So now we're ready to create our trial balance. So the trial balance, it's gonna list all the accounts and their final balances. Okay. So we would basically do what we just did with cash with the T. Account or what we did with accounts payable. We would do that for every account and we would find the final balance in every account. Now. Our example is pretty simple. So there wasn't too many accounts that got affected too many times. Cash was probably the most most complicated T account that we were gonna build. So if you wanted to go through, you could go by account account and practice your T. Accounts to find these final balances. All right. I'm gonna show you the final balances here once we get down there. All right. So what we do is we use these trial balances and what we call the adjusted trial balance to create our financial statements. Alright. So remember that balance sheet, the income statement, cash flow statement. That's what we're all building up with all of building up to all of this work that we've been putting in. It's leading us to finally being able to show our our users show our investors, show our banks or the creditors uh the position of the company, show them these financial statements. Okay? So when we create a trial balance, we're gonna show our accounts in a certain order. First we're gonna show the assets, then the liabilities, then equity followed by revenue and finally expenses. Okay. This is gonna be the order of the accounts that we're gonna show in our trial balance. And I've already listed them here. These are all the accounts that we affected throughout our formation example for clutch tutoring. So notice what we've got here. We've got all these accounts right here. Those are the assets, right. We've got, you can't see that. Let me let me go. I'll do it on this side. So right here that's assets right here. Right. Then we have what we only had one liability. Then we had our equity accounts right here. And remember that these these revenue and expense accounts, they're part of equity. Right? All of the income goes into equity revenues and expenses go into equity. But we're just gonna list them here separately. Revenue and expenses. Right. Okay. So we've got all our accounts listed and these are all the accounts that we affected throughout our example. Okay. So what we would do is we would find the final balance in every account and most of them were only affected one time. So you could see the final balance just from the journal entries. Okay. So cash, we did the T-account for cash above. Right. We went up here, we did the cash T. Account and we got a final balance of $10,000. Right? So that's what we would put in here. The final balance of cash was $10,000. And then accounts receivable. We had a couple of transactions there, we had 5000 owed to us and then we uh and then we received 3500 of it. So there was only 1500 left in accounts receivable. And you could see that if you made a t account for accounts receivable and got the transactions uh got the the entries from our transactions supplies. We saw went up to 8000 Land had a value of 40,000. Alright. And those were all debit balances, right? Those are all assets. So we can expect them to have a debit balance. Next we have a liability accounts payable, right? And this accounts payable account had 8000 in it. But this is a credit balance, right? Because it is a liability. We would expect a credit balance. Alright. And now equity accounts. Well, common stock. When Johnny Clutch started the business, he put 50,000 into the business. Let me get out of the way for the rest of these Uh dividends. The next one, dividends, right? We paid dividends of $500. And that was a reduction of equity. Right? We paid that out of our equity this 500. So it's gonna be a debit there in our equity account. Next we have revenues. We held those reviews and we earned 5000 in revenues. And our wage expense. Right? And that was a credit because revenues go up with credits and our wage expense was 3000 that we paid to our tutors. Okay. So this is our last check to be able to make sure that everything is correct and we didn't make any errors. We're gonna total up all the debits and all the credits. Right. I'm gonna start with the credits because there's less numbers there. But let's go ahead and do that. We've got 8000 plus 50,000 plus 5000 gets us to a total of 63,000 down here. Right? There's 63,000 total credits. And our debits should hopefully equal the same amount. 10,000 plus 1500 plus 8000 plus 543,000 there it is 63,000. So the debits equal 63,000 credits equals 63,000. That's a good sign that we've done everything correctly here. Okay. So that's always a good check. Is being able to check whether your debits equal your credits, whether your assets equal your liabilities plus equity. If there's something wrong there, that means you've made an error somewhere and you can go back and check your work. Okay? So this is our trial balance and with this information we could be ready to make our financial statements. Alright? We would take our assets and we would show those as the assets, we would show our liabilities, we would show our equity. But what we have here is what's called an unadjusted trial balance. Okay. In further units, we're gonna talk about adjusting entries, entries that we're gonna do to adjust certain things in the business to get to the real final balances. Okay. But as of now this would be a trial balance that we could go ahead and make journal entries or excuse me, make financial statements out of. Okay. In the future we're gonna learn about adjusting entries and the adjusted trial balance. Don't worry, it might sound scary right now but they're not that difficult. Alright, so let's go ahead and pause here and we'll move on to the next video.
