All 25 Trial Balance questions
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How is the trial balance used to prepare financial statements? How do you locate the difference when a trial balance does not balance? What is the difference between a trial balance and a balance sheet? Why do assets and expenses have debit balances while income, liabilities, and capital have credit balances? What is the effect of depreciation on the trial balance and statements? What is the difference between a trial balance error being 'in the trial balance' versus 'in the ledger'? What is an extended trial balance (ETB)? How does closing inventory appear in relation to the trial balance? How do compensating errors affect the trial balance? How is a suspense account shown if the trial balance still doesn't balance at reporting time?
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How do accruals and prepayments affect the figures taken to the financial statements from the trial balance?

Intermediate

Answer

Accruals add expenses incurred but not yet recorded (increasing the expense and creating a liability); prepayments remove expenses paid in advance from this period (reducing the expense and creating an asset). These period-end adjustments modify the trial balance expense figures before they go to the income statement.
Rent paid 12,000 for 15 months -> prepay 2,400: Dr Prepayment 2,400; Cr Rent 2,400.
Real-world example A prepaid insurance is removed from this year's expense via an adjustment before the accounts are prepared.

Common follow-ups: What does an accrual create? | How does a prepayment change the expense?

Correcting Errors Control Accounts Trial Balance
All 25 Trial Balance questions