Chapter 3, Problem 3.7AP

To determine

Trial balance:

A trial balance is the summary of all the ledger accounts. The trial balance is prepared to check the total balance of the debit with the total of the balance of the credit column, which must be equal. The trial balance is usually prepared to check accuracy of ledger balances. In trial balance the debit balances are recorded in the left column, and credit balances are recorded in the right column.

To prepare: The Correct trial balance of W Company as on June 30, 2017.

Answer to Problem 3.7AP

Answer: 

Preparea correct trial balance of W Company as on June 30, 2017 as follows:

W Company
Trial balance
June 30,2017
	Debit ($)	Credit ($)
Cash (a)	3,180
Accounts Receivable (b)	3,910
Supplies (c)	460
Equipment (d)	3,340
Accounts Payable (f)		3,220
Unearned Service Revenue		1,200
Common Stock		9,000
Dividend (g)	1,400
Service Revenue		3,480
Salaries and wages Expense (e)	3,700
utilities expense	910
Total	$16,900	$16,900

Table-1

Explanation of Solution

Working note for correct cash balance:

$\begin{array}{c}\text{Correct cash balance = }\left(\begin{array}{l}\text{Amount of cash in trial balance +}\\ \left\{\begin{array}{l}\text{Actual cash received from customer}-\\ \text{Amount debited incorrectly}\end{array}\right\}\end{array}\right)\\ =\left(\$3,090+\left[\text{\$870}-\$780\right]\right)\\ =\$3,090+\$90\\ =\$3,180\end{array}$ (a)

Inerror -1, the normal balance for cash is debit but credit balance is given. The cash received from customer on account is debited in cash account, and credited in accounts receivable for $780 instead of $870. This understates the cash balance recorded in trial balance. Hence, it is to be adjusted for $3,180.

Determine correct accounts receivable balance:

$\begin{array}{c}\begin{array}{l}\text{Correct Accounts}\\ \text{receivable balance}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Amount of accounts receivable in trail balance }-\\ \left\{\begin{array}{l}\text{Actual collection of accounts }\\ \text{receivable}-\text{Amount credited incorrectly}\end{array}\right\}+\\ \left\{\begin{array}{l}\text{Services performed on account }-\\ \text{Amount debited incorrectly }\end{array}\right\}\end{array}\right)\\ \text{=}\left(\text{\$3,190}-\left[\$870-\$780\right]+\left[\text{\$900}-\$90\right]\right)\\ =\$3,190-\$90+\$810\\ =\$3,910\end{array}$ (b)

Inerror -1, the amount of cash received from customer on account is credited in accounts receivable for $780 instead of $870. This understates the accounts receivable balance recorded in trial balance. Hence, this error is to be adjusted for $90.

Inerror -3, the accounts receivable is debited for $90 instead of $900. This understates the accounts receivable balance recorded in trial balance. Hence, it is to be adjusted for $810.

Determine correct supplies balance:

Inerror -2, the purchase of equipment (printer) is debited to supplies account instead of debiting it to equipment account. This overstates the supplies balance recorded in trial balance. Hence, this error is to be adjusted for $340.

$\begin{array}{c}\text{Correct Supplies balance = }\left(\begin{array}{l}\text{Amount of supplies in trial balance}-\\ \text{Purchase of printer on account}\end{array}\right)\\ =\$800-\$340\\ =\$460\end{array}$ (c)

Determine correct Equipment balance:

Inerror -2, the purchase of equipment (printer) is debited to supplies account instead of debiting it to equipment account. This understates the Equipment balance recorded in trial balance. Hence, this error is to be adjusted for $340.

$\begin{array}{c}\text{Correct Equipment balance = }\left(\begin{array}{l}\text{Amount of equipment in trial balance +}\\ \text{Purchase of printer on account}\end{array}\right)\\ =\$3,000+\$340\\ =\$3,460\end{array}$ (d)

Determine correct salaries and wages expense balance:

Inerror -4, the debit posting to salaries and wages expense was omitted. This understates the salaries and wages expense balance recorded in trial balance. Hence, this error is to be adjusted for $700.

Inerror -6, the debit posting of cash dividend was debited to salaries and wages expense. This overstates the salaries and wages expense balance recorded in trial balance. Hence, this error is to be adjusted for $600.

$\begin{array}{c}\begin{array}{l}\text{Correct Salaries and}\\ \text{wages expense }\end{array}\}\text{= }\left(\begin{array}{l}\text{Amount of salaries and wages }\\ \text{expense in trial balance }+\\ \left\{\begin{array}{l}\text{Salaries and wages expense debit (error 4)}-\\ \text{Salaries and wages expense credited(error 6)}\end{array}\right\}\end{array}\right)\\ =\left(\$3,600+\$700-\$600\right)\\ =\$3,700\end{array}$ (e)

Determine correct accounts payable balance:

Inerror -5, the payment on account was credited to account payable account, which should be debited. This overstates the account payable balance recorded in trial balance. Hence, this error is to be adjusted for $ 206.

$\begin{array}{c}\begin{array}{l}\text{Correct Accounts}\\ \text{payable balance}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Amount of accounts payable in trial balance}-\\ \left\{\begin{array}{l}\text{ Amount of accounts payable Credited}-\\ \text{Actual payment to be deduct}\end{array}\right\}\end{array}\right)\\ =\$3,686-\$260-206\\ =\$3,220\end{array}$ (f)

Determine correct dividend balance:

Inerror -6, the payment of cash dividend was debited to salaries and wages account. This understates the dividend balance recorded in trial balance. Hence, this error is to be adjusted for $600.

$\begin{array}{c}\text{Correct Dividends = }\left(\begin{array}{l}\text{Amount of dividends in trial balance }\\ \text{+ dividend payment }\end{array}\right)\\ =\$800+\$600\\ =\$1,400\end{array}$ (g)

Conclusion

The debit column and credit column of the trial balance are agreed, both having balance of $16,900.