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Accounting cycle (2) - Coggle Diagram
Accounting cycle (2)
Trial balance
Includes one item from the statement of comprehensive income, namely the net profit/loss fir a sale of proprietorship or retained earnings for companies or close corporations
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The following errors can lead to the trial balance not balancing:
-The trial balance's casting is incorrect
-A ledger account's balance has been transferred incorrectly:
^The amount is incorrect
^Debit on credit side or visa versa
^Balance omitted
^Balance transferred twice
-A ledger account's balance is incorrect:
^Casting is incorrect
^Casting correct, but balance calculated incorrectly
-Transfers to ledger incorrect:
^Debit posted as credit or visa versa
^Amount incorrect
^An entry has been omitted
^An entry posted twice
-Journal entry is incorrect
The balances of the statement of financial position items as well as the statement of comprehensive income items appear in this trial balance
There may still be errors in a trial balance that balances:
-The omission of a transaction
-The transfer of an entry to the correct side but wrong account
-Compensating errors
-A principle error
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Steps performed in preparing the trial balance from back to front:
-Re-cast the trial balance
-Transfer the ledger account balances to the trial balance
^confirm the account and the correct side
-Check the castings and the calculation of the ledger balances
-Transfer the journal to the ledger
-Calculate the difference on the trial balance
^1000, 100, 10, 1 - difference indicates a casting error
^Difference divisible by 2 - debit balance is equal to half of the difference; recorded in the credit side or visa versa
^Difference divisible by 9 - digits have been interchanged (e.g. 230 instead of 320)
After having completed every step in the accounting cycle, a trial balance is prepared
Correction of errors
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Internal sources are documents generated by the enterprise (e.g. debtor statements, reconciliations, cheque counterfoil, and control accounts)
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External sources are sources generated outside the enterprise (e.g. creditors statements and bank statements)
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Reconciliations
The objective of the reconciliation is to confirm an account balance by means of a document from an independent third party
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