Question

While reviewing a trial balance, you notice the following account balance. Which one is likely to be an error?

a. Inventory with a debit balance $43,000
b. Discount on Bond Payable with a debit balance of $4,000
c. Accumulated Depreciation with a debit balance of $8,000
d. Allowance for Doubtful Accounts with a credit balance of $23,000

Answer 1

The account likely to be in error is 'Accumulated Depreciation' with a debit balance as it should have a credit balance. A T-account balance sheet shows that the bank's net worth is $220, calculated by the difference between assets ($620) and liabilities ($400).

Step-by-step explanation:

Reviewing a trial balance, you have identified the following account balances and are tasked with determining which one is likely to be in error:

• Inventory with a debit balance of $43,000
• Discount on Bond Payable with a debit balance of $4,000
• Accumulated Depreciation with a debit balance of $8,000
• Allowance for Doubtful Accounts with a credit balance of $23,000

The account that is likely to be in error is Accumulated Depreciation with a debit balance of $8,000. This is because Accumulated Depreciation is a contra asset account and should normally have a credit balance as it accumulates depreciation over time, offsetting the asset's value.

To illustrate with a T-account balance sheet:

Assets

• Reserves: $50
• Government Bonds: $70
• Loans: $500

Liabilities

• Deposits: $400

The bank's net worth (also known as shareholder's equity or capital) can be calculated by subtracting total liabilities from total assets.

Assets Total = Reserves + Government Bonds + Loans = $50 + $70 + $500 = $620

Liabilities Total = Deposits = $400

Bank's Net Worth = Assets Total - Liabilities Total = $620 - $400 = $220

Hence, the bank's net worth is $220.