Question

ABC Ltd had the following transactions in the last two months of its year ended December 31, 2019

Nov 1: Paid Shs 9,500 cash for future newspaper advertising

Nov 2: Paid Shs 21,600 cash for 12 months of insurance through October 31, of the next year

Nov 30: Received Shs 33,000 cash for future services to be provided to a customer

Dec 1: Paid Shs 27,000 cash for a consultant's services to be received over the next three months

Dec 15: Received Shs 76,500 Cash for future services to be provided to a customer

Dec 31: Of the advertising paid for on Nov 1, Shs 9,000 worth is not yet used

Dec 31: Services worth Shs 12,000 are not yet provided to the customer who paid on Nov 30

Dec 31: One third of the consulting services paid for on Dec 1 have been received

Dec 31: The Company has performed Shs 30,000 worth of services that the customer paid for on Dec 15

Required

a) Adjusting entries from the information provided above at the end of the year

b) What is the Objective of a trial balance? Explain three possible errors that may not be detected by the extraction of a trial balance

Answer 1

a)	Date	Accounts Title	Debit	Credit
	Nov-01	Prepaid Expense	9500
		CASH		9500
		(To record prepaid advertising paymet)
	Nov-02	Prepaid Insurance	21600
		Cash		21600
		(To record prepaid insurance paymet)
	Nov-30	Cash	33000
		Unearned revenue		33000
		(To record unearned revenue)
	Dec-01	Prepaid Expense	27000
		CASH		27000
		(To record prepaid consultancy payment)
	Dec-15	Cash	76500
		Unearned revenue		76500
		(To record unearned revenue)
	Dec-31	Advertising Expense	500
		Prepaid Expense		500
		(to record advertisement expense)
	Dec-31	Unearned Revenue	21000
		Service Revenue		21000
		(to record service revenue)
	Dec-31	ConsultiNG Expense	9000
		Prepaid Expense		9000
		(to record consultancy expense)
	Dec-31	Unearned Revenue	30000
		Service Revenue		30000
		(to record service revenue)
b)	The purpose of Trial balance is to check that all entries made upto date are balances and debits are matching with credits. A correct trial balance is thereafter posted in the formats if income statement and balance sheet.
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