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Difficulty: HardBalancing Ledger Accounts and Extracting Trial Balance

The accountant of Prime Ventures extracted the following balances from the ledger accounts at the end of the trading period:

Account TitleBalance (₦₦)
Capital300,000300,000
Equipment350,000350,000
Sales400,000400,000
Purchases280,000280,000
Rent Expense35,00035,000
Returns Inward15,00015,000
Bank Overdraft30,00030,000
Trade Debtors125,000125,000
Trade Creditors70,00070,000
Provision for Doubtful Debts5,0005,000

During the extraction process to the Trial Balance, two errors occurred:
1. Returns Inward (₦15,000₦15,000) was erroneously entered into the credit column.
2. Provision for Doubtful Debts (₦5,000₦5,000) was erroneously entered into the debit column.

What is the total of the credit column of the Trial Balance as extracted by the accountant?

  1. ₦815,000₦815,000Answer
  2. B
    ₦795,000₦795,000
  3. C
    ₦805,000₦805,000
  4. D
    ��825,000��825,000

Answer

The total of the credit column of the extracted Trial Balance is ₦815,000₦815,000.
The normal credit balances of Prime Ventures consist of Capital (₦300,000₦300,000), Sales (₦400,000₦400,000), Bank Overdraft (₦30,000₦30,000), Trade Creditors (₦70,000₦70,000), and Provision for Doubtful Debts (₦5,000₦5,000), totaling ₦805,000₦805,000. When Returns Inward (₦15,000₦15,000) is mistakenly entered on the credit side, the credit total increases to ₦820,000₦820,000. Simultaneously, because Provision for Doubtful Debts (₦5,000₦5,000) was entered on the debit side instead, it is absent from the credit column, reducing the extracted credit total to ₦815,000₦815,000.

Step-by-Step Solution

1
Identify normal credit balances and calculate the initial normal credit total.
Credit items: Capital (₦300,000₦300,000), Sales (₦400,000₦400,000), Bank Overdraft (₦30,000₦30,000), Trade Creditors (₦70,000₦70,000), and Provision for Doubtful Debts (₦5,000₦5,000). Normal Credit Total = 300,000+400,000+30,000+70,000+5,000=₦805,000300,000 + 400,000 + 30,000 + 70,000 + 5,000 = ₦805,000.
Establishing the correct baseline total of credit entries is necessary before applying extraction errors.
2
Adjust the credit total for the misplacement of Returns Inward.
Returns Inward (₦15,000₦15,000) is added to the credit column: 805,000+15,000=₦820,000805,000 + 15,000 = ₦820,000.
Entering a debit balance item into the credit column increases the total of the credit column by its full value.
3
Adjust the credit total for the misplacement of Provision for Doubtful Debts.
Provision for Doubtful Debts (₦5,000₦5,000) was removed from the credit side and placed on the debit side. Extracted Credit Total = 820,000−5,000=₦815,000820,000 - 5,000 = ₦815,000.
Because Provision for Doubtful Debts was placed on the debit side instead, it was omitted from the credit side, reducing the credit column total by ₦5,000₦5,000.

Key Concept

Impact of Ledger Extraction and Side Placement Errors on Trial Balance Column Totals
Estimated Time:2m 0s
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Topics

Balancing Ledger Accounts and Extracting Trial Balance

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