Trial Balance Detective - Practice 1

5 questions0m 0s

Learn the skill

In this simplified accrual model, completed service creates revenue even if the customer pays later. Debit Accounts Receivable (an asset) and credit Service Revenue. Later collection debits Cash and credits Accounts Receivable, not revenue again. Expenses increase with debits and reduce profit. Before closing entries, a trial balance lists each ending account balance once: total debits should equal total credits. Equal totals do not prove the records are complete or correct.

Worked example

Separate example: owner cash 70; completed service billed 18; customer pays 6; a current expense costs 4 cash. Cash = 72, Receivable = 12, Expense = 4 (debit balances). Capital = 70 and Revenue = 18 (credits). Each side totals 88. Profit is 18 - 4 = 14, not the cash balance.

Separate example trial balance: Cash debit 72, Accounts Receivable debit 12, Expense debit 4, Capital credit 70 and Service Revenue credit 18. Total debits and credits are both 88. Profit is 14. — Use ending balances, not every transaction amount. Cash received is not always new revenue.

Service workshop: one period

Start with zero balances. T1: owner contributes 100 cash. T2: complete and bill a customer 45 for a service. T3: receive 20 toward that same bill. T4: pay 8 cash for this period's electricity, consumed now. Use fictional dollars and accrual accounting before closing entries. No other transactions, tax, fees, depreciation or adjustments apply. Do not use real financial records.

Question 1 After T3, how many dollars does the customer still owe? Answer

Question 2 After T4, what is the Cash balance in dollars? Answer

Question 3 What is profit for this period in dollars? Answer

Question 4 What is the total of EACH trial balance column? 137 dollars 145 dollars 112 dollars

Question 5 If BOTH sides of T4 were omitted, would equal trial balance totals expose that omission? Yes, every error makes the totals differ No; the expense and its cash credit would both be missing No; expenses never belong in records