Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Trial Balance

Financial Accounting

2. Transaction Analysis

Trial Balance

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Multiple Choice

When preparing a trial balance, which of the following statements is correct?

The total debits should equal the total credits.

The trial balance is prepared after the financial statements.

Only asset accounts are included in the trial balance.

The trial balance proves that all transactions have been recorded correctly.

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Verified step by step guidance

Understand the purpose of a trial balance: A trial balance is a list of all ledger accounts and their balances at a specific point in time. It is used to ensure that the total debits equal the total credits, which is a fundamental principle of double-entry accounting.

Clarify the correct statement: The correct statement is 'The total debits should equal the total credits.' This reflects the double-entry accounting system, where every transaction affects at least two accounts, maintaining the balance between debits and credits.

Address the incorrect statements: The trial balance is prepared before the financial statements, not after. It serves as a preliminary check to ensure the ledger is balanced before creating financial statements.

Explain why only asset accounts are not included: The trial balance includes all accounts—assets, liabilities, equity, revenues, and expenses—not just asset accounts. This ensures a comprehensive check of the ledger balances.

Discuss the limitation of the trial balance: While the trial balance ensures that debits equal credits, it does not prove that all transactions have been recorded correctly. Errors such as omissions or incorrect account postings can still exist even if the trial balance is balanced.