Hi there. I'm taking my first college accounting class. We're doing a project where we do the accounting cycle from journal to closing on a fictional business. I'm at my first (unadjusted trial balance) and DR and CR don't balance. Everything balanced on my Journal entries. Can't figure it out. :confused: Here it is.

I suspect it's probably something fairly obvious that I'm just not picking up. I'm really not a stupid person, but jeeeesh.


Cash... DR 29,000
Inventory DR. 4,000
Supplies DR 1,500
Prepaid Insurance DR. 2,900
Salaries Payable.. CR 5,000 (2,700 + 2,300)
Brewing Equipment.. DR 21,000
Common Stock CR 50,000 (the common stock is the cash, 29,000 used to start the business + the brewing equipment 21,000)
Dividends DR 1,300
Revenue CR 13,000
Cost of goods sold DR 4,000
Salaries Expense DR 5,000
Insurance expense. DR 2,900
Rent Expense. DR 1,200
Supplies Expense, DR 1,500
Repairs Expense DR 550
Telephone expense DR 800
My Debit side is coming up 75,650 and Credit is coming up 68,000

Quote:

---

Originally Posted by NewStudentJA

Hi there. I'm taking my first college accounting class. We're doing a project where we do the accounting cycle from journal to closing on a fictional business. I'm at my first (unadjusted trial balance) and DR and CR don't balance. Everything balanced on my Journal entries. Can't figure it out. :confused: Here it is.

I suspect it's probably something fairly obvious that I'm just not picking up. I'm really not a stupid person, but jeeeesh.


Cash....DR 29,000
Inventory DR. 4,000
supplies DR 1,500
Prepaid Insurance DR. 2,900
Salaries Payable.. CR 5,000 (2,700 + 2,300)
Brewing Equipment.. DR 21,000
Common Stock CR 50,000 (the common stock is the cash, 29,000 used to start the business + the brewing equipment 21,000)
Dividends DR 1,300
Revenue CR 13,000
Cost of goods sold DR 4,000
Salaries Expense DR 5,000
Insurance expense. DR 2,900
Rent Expense. DR 1,200
Supplies Expense, DR 1,500
Repairs Expense DR 550
Telephone expense DR 800
My Debit side is coming up 75,650 and Credit is coming up 68,000

---

I am sure you have mixed up in posting the journal entries to the ledger accounts:
1. You started with Cash $29,000 and still have the same amount in hand at period end? Assuming you received revenue in cash $13,000, you need to account for $42,000. Where the cash payments accounted for?
2. You have a debit of inventory and cost of goods sold of $4,000. Not possible
3. Similarly, supplies, insurance also have the same debit amounts in supplies expense, prepaid insurance

Please recheck your work

Sweet. Thanks so much for your input.

Quote:

---

Originally Posted by rehmanvohra

2. You have a debit of inventory and cost of goods sold of $4,000. Not possible

---

Not possible? It might be a little odd that the two numbers are alike. Given there's expenses in the same amount as their corresponding assets, it does appear a bit suspicious. But not possible? Sure it is.

The supplies expense, insurance expense, AND the salaries payable all make me think you perhaps already did adjusting entries, and that this is not an unadjusted trial balance. I also suspect those entries are all incorrect -- my suspicions are that you've debited and credited two different amounts. Like debited the supplies balance to the expense and credited the used portion to the supplies. A common type error I see that would result in just what we're seeing here.

Quote:

---

Originally Posted by morgaine300

Not possible? It might be a little odd that the two numbers are alike. Given there's expenses in the exact same amount as their corresponding assets, it does appear a bit suspicious. But not possible? Sure it is.

The supplies expense, insurance expense, AND the salaries payable all make me think you perhaps already did adjusting entries, and that this is not an unadjusted trial balance. I also suspect those entries are all incorrect -- my suspicions are that you've debited and credited two different amounts. Like debited the supplies balance to the expense and credited the used portion to the supplies. A common type error I see that would result in just what we're seeing here.

---

Hey there. That's actually not a bad assumption, but these are the entries we were given in the project package. What I think I did wrong is I didn't (at first subtract all the expenses from my cash account.) and then I failed to subtract the profit 13,000 from the cost of the inventory sold 400. Giving me 9000 instead of 13,000 for revenue. Now everything is much closer. I'm 400 off. It makes me think I've misplaced the cost of goods sold or the inventory somehow.

Any thoughts?

Quote:

---

Originally Posted by NewStudentJA

Hey there. Thats actually not a bad assumption, but these are the entries we were given in the project package. What I think I did wrong is I didn't (at first subtract all the expenses from my cash account.) and then I failed to subtract the profit 13,000 from the cost of the inventory sold 400. Giving me 9000 instead of 13,000 for revenue. now everything is much closer. I'm 400 off. It makes me think I've misplaced the cost of goods sold or the inventory somehow.

any thoughts?

---

Well, I always have thoughts. Doesn't mean people want to hear them. LOL.

I disagree with you. To begin with, expenses aren't necessarily subtracted from cash. But I also tend to assume everything is an accrued basis unless someone says otherwise. Is this a cash basis? If not, then expenses and cash don't necessarily happen at the same time, nor do revenues and cash.

But even if you're on a cash basis, you would not subtract profit from the cost of inventory. Gross profit is the difference between what you sold it for, and what it cost you. You put it in inventory at cost. When it gets sold, you take it back out, at cost. And that goes into cost of goods sold. That's an expense account, representing the cost of whatever you already sold. That cost isn't the same as retail, nor the same as profit. The revenue is the gross. If sales were 13,000, then revenue is 13,000.

Was the cost 9000, and the gross profit 4000? Then 9000 comes out of inventory and goes into COGS. 13,000 is your revenue. The profit isn't an account, which I think is an important point. It simply shows up on the income statement by subtracting COGS from revenue.

Another important point is that how much you are off has no meaning. That is, how far you're off doesn't equate to how badly you're off or how many mistakes. Being 400 off instead of 7000-whatever it was doesn't mean you're "closer" to being right. You could be further from being right. You're just doing whatever it takes to make that difference closer to zero when you could be messing it up further. The only time that difference has any meaning at all is if you only have one error, and that difference might give you a clue as to what it is. Otherwise, it means nothing, and being bigger or smaller means nothing.

None of what you mentioned necessarily puts you out of balance. Leaving an entry out, putting something in a wrong account, that kind of thing, does not make you out of balance. As long as the entry balances and as long as you applied a debit as a debit, and a credit as a credit (even to the wrong account), you'll still balance. You can make all sorts of mistakes and still balance. All balancing says is that everything you did mathematically along the way was balanced. But a calculator doesn't know if you put it into cash or into COGS or into inventory. You could post your debit to cash to the wrong account, and as long as it's a debit, you'll balance.

So when you're out of balance, it means that a) your journal entry didn't balance to begin with, b) you left out a posting, c) you copied the number incorrectly when you posted, d) you posted a debit as a credit or vice versa, e) you posted something twice f) you posted something, then corrected the journal entry and forgot to unpost the mistake g) you balanced the account incorrectly, h) you copied the balance into your trial balance incorrectly, I) you missed an account in the trial balance, or listed something twice, j) you copied a debit as a credit or vice versa, k) you added the columns in your trial balance incorrectly. (Look at f closely... I see that one all the time. People make messes when they try to correct errors.)

All of those items are related to math. Notice that none of it included using the wrong account in your entry or posting it to the wrong account, because the math doesn't care. You need to be looking for a MATH problem - something that doesn't balance somewhere or you copied something wrong, etc. Don't start forcing corrections just to get that difference closer to zero.

That said, I do think there are other problems going on, but those problems might not be causing you to be out of balance. We also can't necessarily find those problems without seeing all your work start to finish. With only the trial balance, we can only spot stuff that "seems funny" or something obvious like your cash is a credit, that type of thing.

Hello again. On the cost of goods sold. I'll simply put in the situation. In this fictional business, they sold 4,000 worth of their inventory for 13,000. I entered 'cost of goods sold' debit of 4,000. And under "Inventory" I credit 4,000. So instead of writing down 13,000 as revenue I subtracted the cost of the goods from the 13,000 to get their profit.

Quote:

---

Hello again. On the cost of goods sold. I'll simply put in the situation. In this fictional business, they sold 4,000 worth of their inventory for 13,000. I entered 'cost of goods sold' debit of 4,000. And under "Inventory" I credit 4,000.

---

That part's right.

Quote:

---

So instead of writing down 13,000 as revenue I subtracted the cost of the goods from the 13,000 to get their profit.

---

That part is not. "Revenue" means gross. I think you're not getting that idea. $13,000 is the revenue. "Profit" is not an account. Yes, the 4000 from the 13,000 is their gross profit. (And I would call it gross profit if I were you.) But that isn't an account. How can we get the difference between 13,000 and 4000 if the 13,000 doesn't exist on our books anywhere?

You need to credit the sales revenue for the entire 13,000 (not the gross profit) and then debit cash if you received cash for it, or accounts receivable if it's an accrued basis and you did not get paid.