4.3. Step 3: Group trial balance accounts by classification

There are more trial balance accounts in Illustration 5 than there are balance sheet classifications (groups) in Illustration 4.  That is because some classifications (groups) may include multiple trial balance accounts.  For example, Cash and Cash Equivalents on the balance sheet template will include the following trial balance accounts since they have the same nature: Petty Cash, Chase Checking, PayPal Checking, Savings, and Money Market.  Therefore, the next step is to group all accounts on the trial balance by their respective balance sheet classifications.

We have added another column to the trial balance where we entered the balance sheet classification for the accounts. Refer to Illustration 6 below.

4.4. Step 4: Subtotal account balances by classification

The following step is to subtotal the balances in the accounts for each classification. Note that when subtotals are prepared, all asset balances are calculated as Debit – Credit, while all liability and equity balances are calculated as Credit – Debit. For example, the subtotal for the balance sheet classification "Accounts Receivable" is equal to the debit amount in the account 1300, Accounts Receivable, less the credit balance in the account 1350, Allowance for Doubtful Accounts (that is, \$389,000 - \$25,500 = \$363,500). Even though the calculations seem to be complicated, if you use spreadsheet software, it is pretty easy:

Illustration 6: Trial balance with subtotals for balance sheet classifications (groups)

 Your Company Name Trial Balance December 31, 20X0 Acct # Account Name Debit Credit Balance Sheet Classification Subtotal 1000 Petty Cash \$ 500 Cash & Cash Equivalents 391,000 1010 Chase Checking 42,000 1020 PayPal Checking 23,500 1030 Savings 300,000 1040 Money Market 25,000 1200 Marketable Securities 0 Marketable Securities 0 1300 Accounts Receivable 389,000 Accounts Receivable 363,500 1350 Allowance for Doubtful Accts 25,500 1400 Raw Materials 87,000 Inventories 289,000 1410 Work-in-process 12,000 1420 Finished Goods 132,000 1430 Spare Parts 58,000 1500 Prepaid Insurance 5,400 Prepaid Expenses 8,400 1510 Prepaid Rent 3,000 1600 Land 570,000 Fixed Asset 828,000 1610 Buildings 430,000 1620 Leasehold Improvements 100,000 1630 Office Equipment 44,000 1650 A/D-Buildings 240,000 1660 A/D-Leasehold Improvements 51,000 1670 A/D-Office Equipment 25,000 1700 Patens 170,000 Intangible Asset 140,000 1710 Trademark 60,000 1750 Accum Amort-Parents 90,000 1800 Investments in Debt Secs 0 Investments 75,000 1810 Investments in Equity Secs 75,000 1900 Cash Surrender Value Life Insr 54,000 Other Non-current Assets 54,000 2000 Accounts Payable 285,000 Accounts Payable 285,000 2100 Accrued Payroll 205,000 Accrued Expenses 570,000 2110 Accrued Property Taxes 42,000 2120 Accrued Vacation 323,000 2200 Short-term Bank Loan 245,000 Short-term Loans 245,000 2300 Current Portion of Line of Credit 100,000 Current Portion of Long-term Debt 100,000 2400 State Income Tax Payable 30,000 Income Taxes Payable 90,000 2410 Federal Income Tax Payable 60,000 2500 Line of Credit (Revolver) 53,000 Line of Credit 53,000 2510 Term Loan 250,000 Term Loan 250,000 3000 Capital 50,000 Capital 50,000 3010 Current Year Earnings 159,000 Current Year Earnings 159,000 3020 Retained Earnings 346,900 Retained Earnings 346,900 Total \$ 2,580,400 \$ 2,580,400
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