Preparing a Trial Balance

To prepare a trial balance, we need to gather information about the various accounts and their balances. This includes both the balance sheet accounts (assets, liabilities, and owner's equity) and the income statement accounts (revenues and expenses). The trial balance is a summary of all these accounts and their balances to ensure that the total debits equal the total credits.

Step 1: Gather the Account Balances

In this case, we are given the following information:
- Prepaid expenses: $5,000
- Outstanding rent: $2,000
- Bad debts recovered: $4,000

Step 2: Classify the Accounts

We need to classify each account into its respective category: assets, liabilities, owner's equity, revenues, or expenses.

- Prepaid expenses: This falls under the assets category as it represents expenses paid in advance.
- Outstanding rent: This falls under the liabilities category as it represents an expense that has not yet been paid.
- Bad debts recovered: This falls under the revenues category as it represents the recovery of previously written off bad debts.

Step 3: Prepare the Trial Balance

Now that we have classified the accounts, we can prepare the trial balance by listing the accounts and their balances.

The trial balance would look like this:

| Account | Debit ($) | Credit ($) |
|--------------------------|-----------|------------|
| Prepaid expenses | 5,000 | 0 |
| Outstanding rent | 0 | 2,000 |
| Bad debts recovered | 4,000 | 0 |
| Total | 9,000 | 2,000 |

The total debit balance is $9,000, and the total credit balance is $2,000. The trial balance is balanced since the total debits equal the total credits.

Conclusion:

In conclusion, to prepare a trial balance, we need to gather the account balances and classify them into their respective categories. Then, we can list the accounts and their balances to ensure that the total debits equal the total credits. The trial balance is an important tool in the accounting process as it helps to identify any errors in the recording of transactions.