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Task A

A Trial Balance is constructed by listing all accounts under the General

Ledger with their corresponding Debit/Credit value. These are then summed up

and the total debit is compared to the total credit to ensure that both sides are

equal. A Trial Balance is achieved when the total debit is equivalent to the total

credit.

There are some instances in which a Trial Balance needs to be adjusted.

The Trial Balance is only adjusted when a) Assets become Expenses; b)

Liabilities become Revenues and c) when errors occur in recording. The resulting

total debit and credit in the Adjusted Trial Balance must still remain equal.

Assets become Expense

Accounts Receivables, or accounts in which a single or different entities

owes the company a certain amount, are sometimes left unpaid by the debtor.

This may occur for several reasons such as the debtor being totally unable to pay

the incurred debt or a discount is given to the incurred debt. The amount,

therefore, turns into Bad Debts. Bad Debts are treated as expense and would be

reflected in the Trial Balance as Bad Debts Expense.

Liabilities become Revenues

Accounts Payable, or accounts in which the company owes a single or

different entities a certain amount, turns to revenues whenever the company

doesn’t have to pay a certain amount of the debts incurred. Discounts would
sometimes be given by the creditor in cases such as the debts incurred are so

high that there are tendencies that it would take a long time to get settled, or

worse, gets unpaid. There could also be other reasons that certain amount in A/P

would not be needed to be paid. Whenever such incidents occur, Accounts

Payable gets debited while a certain Revenue account gets credited.

Error occurs/exist in recording

The Trial Balance would sometimes need to be adjusted because errors

exist in recording. There could be instances in which values are recorded into the

wrong accounts. Because it is not allowed to simply erase and rewrite the error

as all processes must be accounted for, the Trial Balance must be corrected by

properly adjusting the accounts involved and recording it in the Adjusted Trial

Balance.
Task B

Mariposa Motel Worksheet


Adjusted Trial Income
Account Titles Trial Balance Adjustments Balance Statement Balance Sheet
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 15,200 15200 15200
Advertising Supplies 2,500 500 2000 2000
Prepaid Insurance 600 150 450 450
Office Equipment 5000 5000 5000
Notes Payable 5000 5000 5000
Accounts Payable 2500 2500 2500
Unearned Fees 1200 600 600 600
Bibi Gandanghari, Capital 10000 10000 10000
Bibi Gandanghari, Drawing 500 500 500
Fees Earned 10000 900 10900 10900
Salaries Expense 4000 1000 5000 5000
Rent Expense 900 900 900
TOTALS 28,700 28,700
Advertising Supplies Expense 500 500 500
Prepaid Insurance Expense 150 150 150
Depreciation Expense, Office
Equipment 140 140 140
Accumulated Depreciation,
Office Equipment 140 140 140
Accounts Receivable 300 300 300
Interest Expense 150 150 150
Interest Payable 150 150 150
Salaries Payable 1000 1000 1000
TOTALS 2840 2840 30290 30290 6840 10900 23450 19390
Net Income 4060 4060
TOTALS 10900 10900 23450 23450
Connection between Income Statement and Balance Sheet

 The Balance Sheet sums up all the Assets, Liabilities and Owner’s Equity.
Assets
Account Titles Balance Sheet
Debit Credit
Cash 15200
Advertising Supplies 2000
Prepaid Insurance 450 Liabilities &
Office Equipment 5000 Owner’s
Notes Payable 5000 Equity
Accounts Payable 2500
Unearned Fees 600
Bibi Gandanghari, Capital 10000
Bibi Gandanghari, Drawing 500
Fees Earned
Salaries Expense
Rent Expense
TOTALS
Advertising Supplies
Expense
Prepaid Insurance Expense
Depreciation Expense,
Office Equipment
Accumulated Depreciation,
Office Equipment 140
Accounts Receivable 300
Interest Expense
Interest Payable 150
Salaries Payable 1000

 The total debit (Assets) is compared with the total credit (Liabilities and OE) and

both values must be equal.

Account Titles Balance Sheet


Various Accounts Debit Credit

TOTALS 23450 ≠ 19390


 In order for them to both become equal, Net Income, which is extracted from the

Income Statement, must be added to the credit side of the Balance Sheet.
Income Expenses
Account Titles Statement
Debit Credit
Cash
Advertising Supplies
Revenues
Prepaid Insurance
Office Equipment
Notes Payable
Accounts Payable
Unearned Fees
Bibi Gandanghari, Capital
Bibi Gandanghari, Drawing
Fees Earned 10900
Salaries Expense 5000
Rent Expense 900
TOTALS
Advertising Supplies
Expense 500
Prepaid Insurance Expense 150
Depreciation Expense,
Office Equipment 140
Accumulated Depreciation,
Office Equipment
Accounts Receivable
Interest Expense 150
Interest Payable
Salaries Payable
TOTALS 6840 10900

 Revenue – Expense = Net Income

Account Titles Income Statement


Various Accounts Debit Credit
TOTALS 6840 10900 Total Revenue –
Total Expense
Net Income 4060
TOTALS 10900 = 10900
 The Net Income is a part of Owner’s Equity and is added to the Retained

Earnings (beginning) to get the Retained Earnings (ending).


 Owner’s Equity is composed of Retained Earnings (ending) and Capital.

Account Titles Balance Sheet


Debit Credit
TOTALS 23450 19390
Net Income 4060
TOTALS  =
23450 23450

Net Income is a part


of OE. That’s why it
must be added to
the Credit side of the
Balance Sheet to
make both sides
equal