Homework SourseThe Green Thumb Gardener is a retail store that sells plants
The Green Thumb Gardener is a retail store that sells plants, soil, and decorative pots. On December 31, 2019, the firm\'s general ledger contained the accounts and balances that appear below.
ADJUSTMENTS
a.–b. Merchandise inventory on December 31, 2019, is $11,821.
During 2019, the firm had net credit sales of $30,000; the firm estimates that 0.6 percent of these sales will result in uncollectible accounts.
On December 31, 2019, an inventory of the supplies showed that items costing $250 were on hand.
On October 1, 2019, the firm signed a six-month advertising contract for $960 with a local newspaper and paid the full amount in advance.
On January 2, 2018, the firm purchased store equipment for $7,800. At that time, the equipment was estimated to have a useful life of five years and a salvage value of $550.
On January 2, 2018, the firm purchased office equipment for $1,300. At that time, the equipment was estimated to have a useful life of five years and a salvage value of $150.
On December 31, 2019, the firm owed salaries of $1,780 that will not be paid until 2020.
On December 31, 2019, the firm owed the employer’s social security tax (assume 6.2 percent) and Medicare tax (assume 1.45 percent) on the entire $1,780 of accrued wages.
On December 31, 2019, the firm owed federal unemployment tax (assume 0.6 percent) and state unemployment tax (assume 5.4 percent) on the entire $1,780 of accrued wages.
Required:
Prepare the Trial Balance section of a 10-column worksheet. The worksheet covers the year ended December 31, 2019.
Enter the adjustments above in the Adjustments section of the worksheet.
Complete the worksheet.
Analyze:
By what amount were the assets of the business affected by adjustments?
| ACCOUNTS AND BALANCES | |||||
| Cash | $ | 5,200 | Dr. | ||
| Accounts Receivable | 2,100 | Dr. | |||
| Allowance for Doubtful Accounts | 47 | Cr. | |||
| Merchandise Inventory | 10,800 | Dr. | |||
| Supplies | 1,150 | Dr. | |||
| Prepaid Advertising | 960 | Dr. | |||
| Store Equipment | 7,800 | Dr. | |||
| Accumulated Depreciation—Store Equipment | 1,450 | Cr. | |||
| Office Equipment | 1,300 | Dr. | |||
| Accumulated Depreciation—Office Equipment | 230 | Cr. | |||
| Accounts Payable | 2,575 | Cr. | |||
| Social Security Tax Payable | 380 | Cr. | |||
| Medicare Tax Payable | 83 | Cr. | |||
| Federal Unemployment Tax Payable | |||||
| State Unemployment Tax Payable | |||||
| Salaries Payable | |||||
| Beth Argo, Capital | 22,927 | Cr. | |||
| Beth Argo, Drawing | 19,500 | Dr. | |||
| Sales | 87,548 | Cr. | |||
| Sales Returns and Allowances | 1,050 | Dr. | |||
| Purchases | 44,900 | Dr. | |||
| Purchases Returns and Allowances | 380 | Cr. | |||
| Rent Expense | 5,500 | Dr. | |||
| Telephone Expense | 540 | Dr. | |||
| Salaries Expense | 13,600 | Dr. | |||
| Payroll Taxes Expense | 1,220 | Dr. | |||
| Income Summary | |||||
| Supplies Expense | |||||
| Advertising Expense | |||||
| Depreciation Expense—Store Equipment | |||||
| Depreciation Expense—Office Equipment | |||||
| Uncollectible Accounts Expense | |||||
Solution
A trial balance is a bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal. A company prepares a trial balance periodically, usually at the end of every reporting period. The general purpose of producing a trial balance is to ensure the entries in a company\'s bookkeeping system are mathematically correct.
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BREAKING DOWN \'Trial Balance\'
Preparing a trial balance for a company serves to detect any mathematical errors that have occurred in the double-entry accounting system. If the total debits equal the total credits, the trial balance is considered to be balanced, and there should be no mathematical errors in the ledgers. However, this does not mean there are no errors in a company\'s accounting system. For example, transactions classified improperly or those simply missing from the system could still be material accounting errors that would not be detected by the trial balance procedure.
Ledger Accounts
Companies initially record their business transactions in bookkeeping accounts within the general ledger. Depending on the kinds of business transactions that have occurred, accounts in the ledgers could have been debited or credited during a given accounting period before they are used in a trial balance worksheet. Furthermore, some accounts may have been used to record multiple business transactions. As a result, the ending balance of each ledger account as shown in the trial balance worksheet is the sum of all debits and credits that have been entered to that account based on all related business transactions.
Debits and Credits
At the end of an accounting period, the accounts of asset, expense or loss should each have a debit balance, and the accounts of liability, equity, revenue or gain should each have a credit balance. However, certain accounts of the former type may have also been credited and certain accounts of the latter type may have also been debited during the accounting period when related business transactions reduce their respective accounts\' debit and credit balances, an opposite effect on those accounts\' ending debit or credit balances. On a trial balance worksheet, all the debit balances form the left column, and all the credit balances form the right column, with the account titles placed to the far left of the two columns.
Undetectable Errors
After all the ledger accounts and their balances are listed on a trial balance worksheet in their standard format, add up all debit balances and credit balances separately to prove the equality between total debits and total credits. Such uniformity guarantees there are no unequal debits and credits that have been incorrectly entered during the double-entry recording process. However, a trial balance cannot detect bookkeeping errors that are not simple mathematical mistakes. If equal debits and credits are entered into the wrong accounts, a transaction is not recorded or offsetting errors are made with a debit and credit at the same time, a trial balance would still show a perfect balance between total debits and credits.
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