Here's the link.
I am also including the actual word text below the link as a precaution.
Please note I refer to XXXXX XXXXX as Mary in the doc....you might want to make her an Amy instead of Mary.
Mary’s Trial Balance
Mary’s Trial Balance
XXXXX XXXXX must view the big picture of her business on one large worksheet at the end of her business cycle. At that particular time, she needs to balance all the ledger accounts and place the account balances in a statement of balances called the “Trial Balance”. The trial balance worksheet is an internal document and is not released outside the accounting department as would the Income Statement or the Balance Sheet.
The main purpose of a Trial Balance is to check the math: the arithmetical accuracy of all those accounts. All those debits and credits in a dual entry accounting system must end up balanced. It takes a remarkable bookkeeper to keep out typos, transpositions and other such errors. The trial balance is the method for correcting any anomalies in order that the financial statements are accurate and the tax auditors do not discover adjustments that result from sloppy addition or subtraction. Although arithmetic accuracy is the main purpose, the trial balance is a handy tool for the preparation of final accounts that go to the Balance Sheet and Income Statement.
The last line entry in Mary’s trial balance will have a summation of all the debit accounts on the debit column and a summation of all the credit accounts on the credit column in that worksheet.
Mary is preparing her financial statements manually. If she had used modern accounting software, the math errors would have never occurred; in fact, the trial balance does not play a critical role where accounting software is used.
Errors in Preparing Financial Statements
Without the accounting software, an amount might get written incorrectly when posted from a journal to the ledger account; a math error could occur when computing an account’s balance; an amount might be written incorrectly in one of the columns on the trial balance.
Therefore, the summation of the debit and credit columns on that trial balance is vital as the sums will not be balanced in the presence of such errors. This means that all the amounts must be rechecked to discover the errors and correct them. Mary would have to make sure that the balance in the ledger accounts is accurate and that the transfer of each ledger balance to the trial balance is accurate. It can be a tedious process before those columns in the trial balance are finally summed and balanced. The easiest first step is to make sure the summation is correct by adding the column items again. Then the drudgery of checking the ledger accounts to the entries made in the trial balance must be done. If there is still no balance, then it is likely that the errors are in the ledger accounts themselves. Therefore, each ledger account must be rechecked for accuracy.
In addition to the balance sheet and a cash flow statement, the income statement is a valuable financial statement which presents a picture of the income and expense activities of a business like Mary’s for a given business cycle which is usually a calendar year.
Mary’s sales and expenses for the year will be summarized on the Income Statement.
On a typical income statement, entries will be made for Net Sales, Cost of Sales, Gross Income, Selling, General and Administrative Expenses, Operating Income, Other Income and Expenses, Pretax Income, Taxes and Net Income after Tax.
Showing Pretax Income to the investment world is a valuable idea as it gives a clear picture of the income producing capacity of the company before the unavoidable taxes are subtracted.
Mary has done her own bookkeeping. She feels confident of her general ledgers and wants to transfer the ledger amounts directly to her financial statements. Why bother with an intermediate step that is bothersome and time consuming. Mary has to realize that hundreds and thousands of transaction entries in her accounting ledgers and journals over a year are very much open to common arithmetical errors and transposition errors. The trial balance takes more time, but it offers her the insurance of properly balanced accounts that truly represent her business on the Income Statement, Balance Sheet and Cash Flows Statement.
Walther, L. Principles of Accounting 2008 http://www.principlesofaccounting.com/
AccountingCoach, LLC Accounting Basics 2008 http://www.accountingcoach.com/online-accounting-course/60Xpg01.html
Small Business Administration Introduction to Accounting 2009 http://web.sba.gov/sbtn/registration/index.cfm?CourseId=61