What happens if someone, like an Accountant needed to make periodic adjustments to the Quantity of Kapital and Quantity of Schuld? Sometimes, there will be occasions where the Quantity of Kapital, the Quantity of Schuld or both must be revalued or devalued due to the effects of Inflation/Deflation. There may be other moments where the Value of an item has depreciated due to being constantly used over the course of its “Service Life.” It is even possible for there to be accounting errors, whether unintentional or intentional, that cropped up during the Accounting Period and need to be addressed, ensuring that all Debits and Credits remain equal. Whichever the case may be, all imbalances encountered in Double-Entry Account Bookkeeping must be corrected by means of the “Trial Balance.”
The Trial Balance represents a specific attempt at balancing the Quantity of Kapital and the Quantity of Schuld. Usually, when a Bookkeeper finds an imbalance between Debits and Credits within the entries of their Daybook Journal, they would notify the Accountant, who is then tasked with rebalancing Debits and Credits to restore the balances of Kapital and Schuld. An example of a typical format for Trial Balance is demonstrated by the following chart:
The preceding chart describes how, recalling the transactional sale between Dora and Paula, $75.00 USD was allegedly generated from that transactional sale. In case one does not remember from earlier Entries in Section One, Paula had paid $100.00 USD for items worth $100.00 USD from Dora. Thus, $100.00 USD was supposed to have been generated, not $75.00 USD, from that transactional sale. Since all Debits and Credits must be balanced, an Accountant would take the original values, designated as the “Unadjusted Trial Balance,” and make the necessary corrections in a separate pair of entries.
The “Adjusting Daybook Journal Entries” refers to the changes to the Values listed in the “Unadjusted Trial Balances.” To demonstrate how $100.00 USD was generated from the transactional sale, the Accountant would add $25.00 USD to the amount sold to Paula, and leave the other account, the US Dollars paid by Paula, unchanged. The revisions are then listed under the “Adjusted Trial Balances,” where the Debit and Credit are now equal. As for what will be found in the Financial Ledger, it will be the accounts denoted under the “Adjusted Trial Balances.”
What was just shown is a Trial Balance for increasing the Values within a transactional sale in Double-Entry Account Bookkeeping. The next chart depicts how to reapply the same methodology, except for the inverse, where existing Values must be decreased to ensure Debit and Credit are equal. It shows an erroneous recording of $125.00 USD being made from the transactional sale, even though Paula paid $100.00 USD worth of items at that Price. In the Adjusting Daybook Entries, an Accountant would mark the deductions in parenthesis, signifying that the amount is decreasing the $125.00 USD by $25.00 USD to yield $100.00 USD under Debit.
It should be noted that, on its own, the conduct of Trial Balances in Double-Entry Account Bookkeeping is hardly perfect. An Accountant could find out that the imbalances are not coming from the correct accounts. The wrong numbers could have been attributed to the wrong accounts, accounts that are denoting completely different economic activities within a single privatized commercial firm. The Values assigned to one account were either lower or higher than the actual Quantities of Kapital and Schuld for specific transactional sales.
The previous two charts may have been simple demonstrations of Kapital being transferred from Paula to Dora but privatized commercial firms operating in most Market/Mixed Economies facilitate hundreds or thousands of individual transactional sales each day. The constant exchanges of Kapital for all kinds of goods and services need to be as accurate as possible to the circumstances of those transactional sales. Thus, to minimize the likelihood of accounting errors, it becomes necessary for Accountants to consult their colleagues, other Accountants and Bookkeepers, and Auditors or Business Owners. Constant communications with the involved personnel are pivotal in ensuring reliable transparency and accountability for the affected privatized commercial firm.
The significance of the Trial Balances raises important implications for the Work-Standard, particularly for its distinct accounting methodology to be discussed later in Section Three of this Treatise. It is unrealistic to expect perfect, flawless information to be held by one Accountant or Economic Planner. Like a jigsaw puzzle, information pertaining to an Economic Organization, such as a State Enterprise or a Social Enterprise, must be pieced together from disparate groups of people. Given the nature of the Work-Standard, an Economic Planner, Accountant, Inspector, and Bookkeeper need to be able to figure out any potential imbalances in the Quality of Arbeit and the Quality of Geld. They need to be able to demonstrate whether those imbalances are the result of an influx of Actual Geld, the contributions of additional Actual Arbeit, the usual accounting errors, or any expenditures and investments that have not yet been accounted for. Those findings must be easily conveyed to everyone at the affected Economic Organization and the State Commissariats as part of a functioning Council Democracy.
Categories: Work-Standard Accounting Practices
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