ACC5202 Accounting Assignment: Trial Balance and Error Correction

This document provides a comprehensive solution to an accounting assignment, addressing key concepts such as trial balance analysis, error correction, and financial statement preparation. It includes detailed explanations of accounting principles, such as the matching concept and the conceptual framework, with examples of enhancing qualities of financial statements. The assignment covers practical tasks like identifying and rectifying errors in a trial balance, adjusting profit figures based on accounting principles, and preparing journal entries. It includes a thorough examination of accounts receivable management, the impact of credit cards on financial risk, and the importance of providing for bad debts. The solution offers a detailed step-by-step guide to solving accounting problems, making it a valuable resource for students. Desklib provides a platform to explore more solved assignments and past papers.

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Question 1........................................................................................................................................3
Requirement A.............................................................................................................................3
Requirement B.............................................................................................................................4
Question 2........................................................................................................................................4
Requirement A.............................................................................................................................4
Requirement B.............................................................................................................................5
Question 3........................................................................................................................................7
Requirement A.............................................................................................................................7
Requirement B.............................................................................................................................8
Question 4......................................................................................................................................10
Requirement A...........................................................................................................................10
Requirement B...........................................................................................................................11
Question 5......................................................................................................................................15
Requirement A...........................................................................................................................15
Requirement B – Journal Entries...............................................................................................18
Journal Entries...........................................................................................................................19
Question 6......................................................................................................................................20
Requirement A...........................................................................................................................20
Requirement B...........................................................................................................................23

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Reference.......................................................................................................................................24

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Question 1
Requirement A
A trial balance is a statement which is prepared with taking the closing balance of the
different ledger accounts where the debit total balance matches the credit total balance. In simple
words, a trial balance uses closing balance of different ledger accounts which have debit or credit
balances and the statement tallies. If the statement does not tally then there may be certain errors
in the statement. The main use of a trial balance is to check the mathematical accuracy of the
transactions as recorded in the ledger accounts. Every business prepares a trial balance
periodically to ensure that the books of accounts which are made following double entry system
are free from errors which may be due to calculations. This is possible because under double
entry system, the total of debit side will always be equal to the total of credit side. This the
principle which is followed by a trial balance (Needles, Powers and Crosson 2013).
If the trial matches it only means that the mathematical accuracy is there but it does not
mean that their may not be any accounting errors. The matching of trial balance only shows that
there are no calculation errors but there still maty be material errors present in the books of
accounts. For example, an error of omission of an entry will not be identifiable as the trial
balance will match. Another example which can be given is that of bookkeeping error which
means that equal debit and credit been entered into wrong accounts. In this case also, the trial
balance will match but still there is an error in the financial statements.

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Requirement B
Yes No Debit Credit
1. The Accrued Wages account with a
balance of $500 was omitted from the
Trial Balance
Yes Accrued Wages Accrued Wages of $500 should be
paosted in the credit side of trial
balance 500
2. A payment of $490 for Prepaid Rent was
only posted to the Cash at Bank account
and not to Prepaid Rent
Yes Prepaid Rent Debit side of Prepaid Rent should be
increased by $490
490
3. A debit of $458 to Cash at Bank was
posted as $485. The credit entry was
correct.
Yes Cash at Bank Debit Side of Cash at Bank should be
reduced by ($485 - $458) $27
-27
4. A credit of $600 to Accounts Payable
should have been made to Fees Revenue
No Accounts
Payable, Fees
Revenue
Accounts Payable should be debited
and Fees Revenue should be credited
by $600
5. A Dr. for a cash receipt of $500 from
customers in settlement their accounts
was posted twice as a Dr. to the Cash at
Bank and a Dr. to Accounts Receivable
accounts
Yes Cash at Bank,
Accounts
Receivable
Debit side of Cash at Bank should be
decreased by $500, whereas, the
debit balance of accounts receivable
should be reduced by ($500 x 2) $1000
-1500
6. The Prepaid Expense balance of $7280
was listed in the Trial Balance as $7820
Yes Prepaid Expense The prepaid expense balance in Trial
Balance should be reduced by ($7820 -
$7280) $540 -540
7. A $5210 credit to Fees Revenue was
posted as a $521 credit. The debit entry to
Accounts Receivable was made correctly.
Yes Fees Revenue The credit side of Fees Revenue
should be increased by ($5210-$521)
$4689. 4689
8. A purchase of offi ce equipment for
$3300 on credit was not recorded.
No Offi ce
Equipment,
Accounts Payable
Offi ce Equipment should be debited
and Accounts Payable should be
credited by $3300
9. A purchase of Furniture for $7500 using
a loan was posted as a debit to the Loan
Payable account and a debit to the
Equipment account.
Yes Loan Payable Credit side should be increased by
($7500 x 2) $15000
15000
10. The drawings account balance was
listed as a credit for $1500
Yes Drawings Drawings account should be replaced
to debit side of trial balance for $1500
1500
Would the error cause
the Trial Balance not to
balance
Which accounts
would be
affected and
how?
How would the error be corrected
Effect on Trial
Balance totals
Question 2
Requirement A
As per the matching concept of account all the expenses should be reported in the same
period in which the income which is related to such an expense is realized. In other words, this is
an accounting principle which requires to recognize expenses and income in a related way
(Shipman, Swanquist and Whited 2016). As per the matching concept two methods which are

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popularly used in accounting are Accrual system of recognizing and Cash system of
Recognizing.
Under the accrual system of accounting the expenses are recognizes in the year in which
such an expense has been incurred and it does not matter whether cash is paid for such
transaction. In other words, accrual basis of accounting is not dependent on the cash received or
cash paid for recognizing and recording of transactions. Whereas in the case of cash basis of
accounting expenses are recorded when cash is actually paid by the business irrespective of the
fact when the expenses was incurred. Therefore, the major difference between cash basis and
accrual basis is the timing of recognition of transactions.
Requirement B
Part (i)

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Part (ii)

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Particulars Amount Amount
Profit before Adjustments $32,81,001
Add:
Revenue from Commission not recorded $1,520
Unadjusted Prepaid Rent $21,000
Interest Revenue Due $375
Wrongly Debited Offi ce Expenses $6,000 $28,895
$33,09,896
Less:
Accrued Wages Expenses $12,000
Unearned Revenue $8,400
Offcie Supplies Expenses $4,500 $24,900
Profit after Adjustments $32,84,996
Profit Adjustment:
Question 3
Requirement A
Conceptual Framework refers to a system which is followed by organizations in reporting
accounting items and is important in the preparation of the annual reports of a business while
considering the rules and regulations which are universally established (Weil, Schipper and
Francis 2013). The enhancing qualities characteristics of the financial statements are given
below:
1. Comparability: This principle states that the financial statements should be prepared by
following such principles which facilitates the users of the financial statements to
compare the results of the performance of the business with other organization as well as
different periods for the same organization. This principle helps business and the users to
ascertain the overall growth in the business.

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2. Verifiability: The principle suggest that the information which are presented in the
financial statements of the company should be such that it can be easily be verified by the
business. Any financial information is verifiable if the shareholders of the company can
confirm that the financial information are fairly represented.
3. Timeliness: The principle states that financial information if not presented to the
shareholders in time of their decision-making process, then it is not at all useful. The
principle makes it clear that the information should be provided to the investors before
they are able to take decisions.
4. Understandability: As per this principle, the financial information which are depicted in
the annual reports should be simple and easy to understand and no such information
should be included without appropriate notes and explanations which are complex in
nature and difficult to understand.
Requirement B
Part (i)

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Part (ii)

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Question 4
Requirement A
a. The use of credit cards will definitely reduce the risks which are associated with normal
credit facilities. The loan amount can directly be dealt with the credit card company. the
process of credit which was previously available will change due to the new credit card
facilities. The credit card facilities will be making the e-commerce facility much easier.
The cost which are to be incurred in case of credit card is related to interest which is
charged at the end of the month. The credit cards are normally protected with a pin code
which is different for different individuals.
b. Account Receivables forms a major part of the financial statements of the company as it
is related to credit sales of the business. The recording and monitoring of account
receivable will not be affected by the introduction of credit cards in the business (Hope,
Thomas and Vyas 2013). This because credit card can be used up to a certain limit which
is not that much in most of the cases, however account receivables transaction may be of
lumpsum amount due to a big order. Therefore, it is necessary for the business to keep
track of the account receivables as effective management of such items results in
increased generation of sales.
Factoring may be defined as a source of financing wherein the account receivables of the
business are sold to financial intermediary who are known as factors at a discount. In simple
words, it is a source of procuring funds by selling off the receivables of the business. It is to be
clearly understood that factoring is not same as a loan and the funds which are received are not to
be considered as debt capital of the business (Michalski 2014).

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c. Provision for bad debt are allowed in financial statements in order to estimate the losses
which the business might incur. As per the principle of Conservatism, a business must
always recognize probable losses or liabilities and record the same ahead of income or
assets. Therefore, the business has to recognize such a doubtful debt as a provision. If the
provision is not allowed than it will affect the profit which is generated by the business
which will be showing profits in excess and also impact the value of debtors in the
balance sheet of the company.
Requirement B
Part (i)