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The TRIAL BALANCE Explained (Full Example!) - YouTube
Channel: Accounting Stuff
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in today's video we're going to build
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ourselves a trial balance hey guys my
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name is James and welcome back to
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another episode of accounting stuff
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today's video is number five of the
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counting basics and it's all about
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balance I'm going to explain what it
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means why it is this and show you how to
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make one for yourself are you ready
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a trial balance or TB when abbreviate is
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is an accounting report showing the
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closing balances of all general ledger
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accounts at a point in time back in the
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days of accounting on paper it was used
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to check that the debit and credit
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column totals match each other however
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since the introduction of accounting
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software that cheque has become less and
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less important since it's now done
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automatically nowadays it is an internal
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document that is typically used by
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accountants to check for errors and
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assist in the producing of financial
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statements it is also used by auditors
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in deciding which accounts to review
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okay so now we know what a trial balance
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means but what does it look like it
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looks like this we have a complete
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listing of all general ledger accounts
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running down the page with two columns
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for the debit and credit totals in the
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title we need to mention the period end
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date since we're looking at a snapshot
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at a point in time the account names are
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grouped by their type typically we start
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off with assets liabilities equity and
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dividends since this is the typical
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layout of a balance sheet then we have
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all of the revenue and expense accounts
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which make up the income statement or
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profit and loss to reduce the size of a
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trial balance accounts with zero
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balances are normally left out
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completely the columns that the account
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balances going usually line up with the
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normal balances of the account types
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which we can
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using dealer dividends expenses and
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assets are normally debit accounts so
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these go on the Left where is
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liabilities owner's equity and revenue
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are normally credit accounts which go on
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the right the totals of the debit and
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credit columns should always match each
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other if they don't then you'll need to
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check over your workings for errors
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we're double entry bookkeeping at all
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times so the total debits and credits
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are always equal however debit and
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credit totals being equal doesn't mean
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our trial balance is error-free we could
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have switched the debits and credits in
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a journal and got them the wrong way
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round or we could have posted the same
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journal twice well not even posted it at
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all
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we could have posted the journal to the
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wrong accounts entirely or we could have
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posted a balanced journal to the correct
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accounts but the numbers were wrong
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because we messed up our workings so by
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no means does a balance trial balance
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mean that it's correct but is certainly
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a good start
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example time we're going to build the
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trial balance for our window cleaning
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business it's been up and running for
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one month now so we're going to need to
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include all of those transactions from
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the previous two videos if you missed
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either of them you might want to hit
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that pause button now and go check them
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out to help clarify things to create
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this trial balance we're going to use
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something called a working trial balance
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this has a very similar format to the
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one that I showed you before except this
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time we aren't going to split debits and
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credits in two separate columns instead
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we are going to identify debits as
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positive numbers and credits as negative
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numbers to help us distinguish between
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them to start things off we need a
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listing of all of the accounts our
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window cleaning business has then we're
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going to add 7 columns to the right hand
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side of it 6 for each of the journal
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entries and a 7th to calculate the total
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balances in each of the accounts below
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the list of accounts we are going to add
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one final row for the totals of the
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columns so that we can check each of the
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journals bounced as we enter them now
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it's time for us to enter these journals
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I'm going to move through this next
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section quite
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so if any of these accounting entries
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are making sense then check out those
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previous videos and you'll be fine
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first the business owner invests $100
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and in return the business issues $100
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in stock we are going to debit cash by
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$100 and credit owner's equity by $100
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then the business takes out a further
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$200 loan to fund its activities we need
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to debit cash again by $200 and credit
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loans payable by $200 as well
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third the business spends thirty dollars
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in cash on window cleaning equipment we
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credit cash by $30 and we debit
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equipment by $30 next it spends a
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further fifty dollars on cleaning
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supplies the payment is made on account
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so we debit supplies by $50 and credit
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accounts payable by $50 after that the
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business makes one hundred and fifty
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dollars cleaning windows using half of
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its supplies in the process we debit
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cash by a hundred and fifty dollars and
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credit revenue by a hundred and fifty
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dollars to recognize the revenue we also
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credit supplies by $25 and debit cost of
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sales by $25 as well to account for half
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of the supplies being used up finally in
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the journal entries video we spend
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$20.00 at the laundry to clean our
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equipment so we debit laundry costs by
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$20.00 and we credit cash by $20.00 now
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that we have all of our September
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journals written out we can take the
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totals for each account you'll notice
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that the sum of these totals is zero
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that's a good sign because it shows that
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our trial balance is bounced now one
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last thing to finish this off let's
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reformat our working trial balance to
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show our debits and credits in separate
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columns and let's rename this to trial
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balance for the period ended 30th of
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September the total of our accounts with
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a debit balance is $500 and the total of
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our accounts where the credit balance is
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also $500 so here we have our final
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trial balance for the September
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accounting period let's recap what we
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just learned there the trial balance is
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an accounting report that shows the
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closing balances of all GL accounts at a
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point in time it is an internal report
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used by accountants to check for errors
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and help produce financial statements
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the totals of the debit and credit
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columns must always match each other
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exactly for it to balance however
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balance columns doesn't mean that the
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trial balance is error-free thanks for
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watching if you enjoyed this video hit
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that like button subscribe if you want
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to see more have a great week and see
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you next time
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