The document discusses balancing accounts and trial balances. It defines [1] balancing accounts as equalizing debit and credit totals to find account balances, [2] trial balances as lists of ledger account balances used to check the accuracy of double-entry bookkeeping. The key steps are: [1] balancing each account, [2] preparing a trial balance where total debits equal total credits, and [3] identifying possible errors if the trial balance is not in balance.

1. ACC 106
CHAPTER 4
BALANCING THE ACCOUNTS
&
TRIAL BALANCE

2. BALANCING THE ACCOUNTS &
TRIAL BALANCE
KNOWLEDGE OBJECTIVES:
 Balance off the accounts for assets, liabilities, capital,
revenues & expenses.
 Distinguish between debit balance, credit balance & zero
balance.
 To understand why trial balance totals should equal one
another
 Be able to draw up a trial balance from a given set of
accounts
 Appreciate that some kinds of error can be made but the
trial balance totals will still equal one another

3. INTRODUCTION
 To check whether all transactions have been recorded correctly based
on the double entry rules, the accounts have to be balance off & the
trial balance is being prepared.
 The purpose/objectives of preparing trial balance are:
 Determining the arithmetical accuracy of the double entry rules
 It helps to detect errors within a given time period
 To facilitate the process of preparing the final accounts -
(financial statements)
 Trial balance is a list of all ledger accounts with balances at a
particular date.
 Ledger accounts with zero balances are excluded from the trial
balance.
 Trial balance is normally prepared at the end of each month.

4. BALANCING THE ACCOUNTS
 Accounts are normally balance off at the end of each month.
 The purpose of balancing off the accounts is to determine how much is
the balance left in each of the account.
 Therefore, the debit & credit sides of the account will be compared.
 If the total debit is more than total credit, the account is said to have a
debit balance.
 On the other hand, if total credit is more than total debit, so the
account has a credit balance.
 However, if the total debit is equal to total credit, the account has a
zero balance.

5. BALANCING THE ACCOUNTS
(cont’d)
 Steps in balancing off accounts are as follows:
i. Total for both sides of an account are added up
ii. The differences between the larger & the smaller totals is known
as the balancing figure. The balancing figure is placed on the
side of the smaller total as the balance carried down ( balance
c/d)
iii. The balance brought down ( balance b/d) is the same figure as
the balance c/d but recorded on the opposite side of an account &
shown immediately below the total figure on the next day.
iv. If only one item is found in one side of the account, the
balancing is done by recording the same amount on the opposite
side as the balance c/d.

6. DEBIT BALANCE
Bank
1 Apr. Cash 8,000 10 Apr. Rent 2,000
30 Apr. Cash 9,512 11 Apr. Purchases 1,500
30 Apr. Bal c/d 14,012
17,512 17,512
1 May. Bal b/d 14,012
Purchases
3 Apr. Pak Din 5,700 25 Apr. Drawings 1,100
Zila 2,850 T.P/L 8,950
11 Apr. Bank 1,500
10,050 10,050

7. CREDIT BALANCE
Sales
30 Apr. 15,250 8 Apr. Faizal 4,500
T.P/L
Pak Adi 9,000
12 Apr. Cash 250
22 Apr. Cash 1,500
15,250 15,250
Zila
21 Apr. Return Outwards 300 3 Apr. Purchases 2,850
30 Apr. Bal c/d 2,550
2,850
2,850
1 May. Bal b/d
2,550

8. PREPARATION OF TRIAL BALANCE
Below are the steps involved in preparing the trial balance
 State the name of the business & the title accounts having debit
balances are listed in the debit column & accounts having credit
balances are listed in the credit column of a trial balance.
 The amount in each of the column is then totaled
Method of bookkeeping in use is the double entry method, which means:
i. For each debit entry there is a credit entry
ii. For each credit entry there is a debit entry
 Items recorded in all the accounts on the debit side should equal
in total all the items recorded on the credit side of the books.

9. PRO FORMA TRIAL BALANCE
Timah Trading
Trial Balance as at 30 April 2006
Item Dr Cr
RM RM
Fixed Assets XX
Bank XX
Cash XX
Debtors XX
Drawings XX
Expenses XX
Purchases XX
Return Inwards XX
Discount Allowed XX
Discount Received XX
Return Outwards XX
Sales XX
Capital XX
Creditors XX
Loan from Bank XX
TOTAL DEBIT = TOTAL CREDIT

10. ERRORS IN THE TRIAL BALANCE
 Even thought the objectives of trial balance is to check the arithmetical
accuracy of the double entry rules used, there might still be some errors in the
trial balance.
 There are 2 types of error:
 Errors affecting the trial balance agreement
 Errors not affecting the trial balance agreement
Errors affecting the trial balance agreement
 If your trial balance does not balance, this indicates that one or more have been
made in the process of recording the transactions.
 5 types of errors affecting the trial balance are as follows:
 Single entry
 Errors of transposition
 Errors in addition
 Posting to the incorrect side of an account
 Errors in the trial balance

11. ERRORS IN THE TRIAL BALANCE
(cont’d)
a) Single entry – this is where only one i.e. cash received from debtor RM200 was
aspect of a transaction is recorded. debited to the cash account. However, no
entry was made in the debtor’s account.
b) Errors of transposition - Figures are i.e. cash sales RM1,234 was credited to sales
written in the wrong order that is account as RM1,432.
debiting & crediting the accounts with Dr. Cash a/c RM1,234
different amount. Cr. Sales a/c RM1,432
c) Errors in Addition - Errors occur i.e. the total sales account by cash is
when adding the debit & the credit RM2,200. however, the total cash account is
sides of an account. added wrongly RM2,000.
d) Posting to the incorrect side of an i.e. paid creditor by cheque RM2,000 is
account – the debit or credit entry of debited to the creditors & bank account.
transaction is posted to the wrong side Dr. Creditors a/c RM2,000
of an account. Dr. Bank a/c RM2,000
e) Errors in the trial balance – error i.e. the cash account wrongly transferred to
when transferring the account balances the trial balance as RM200 instead of
from the ledger into the trial balance. RM2,000.

12. ERRORS IN THE TRIAL BALANCE
(cont’d)
Errors not affecting the trial balance agreement
 Even though a trial balance balances ( total debit = total credit), it
doesn’t mean that all transactions have been correctly recorded.
 The following are errors that may occur:
 Error of omission
 Error of Commission
 Error of principle
 Complete reversal of entries
 Compensating errors
 Error of original entry

13. ERRORS IN THE TRIAL BALANCE
(cont’d)
Error of omission – entire transaction has i.e. Jan 1 & 2 have cash sales RM200 & RM
not been recorded /transaction is completely 400 respectively. However cash sales on Jan
omitted from the books of a/c. 2 was not recorded in either sales/cash a/c.
Error of Commission – where correct i.e. credit sales to Amat on Jan 2 was
amount is posted into wrong a/c of the same wrongly debited to Ahmad’s a/c (another
category of a/cs. debtor)
Error of principle – where correct amount is i.e. Repairs of Machinery (expense) RM200
posted into an a/c but of a different category was debited to Machinery a/c (asset).
Complete reversal of entries – where the i.e. Paid creditor by cash RM100.
amounts & the accounts are correct but each Dr. Cash a/c RM100
item is shown on the wrong side of the a/c. Cr. Creditor a/c RM100
Compensating errors – an error on the Dr. i.e. cash sales RM1000 was wrongly
side compensated by an error on the Cr.side. credited to sales a/c RM100.& Cash
purchase RM1,000 was wrongly debited to
purchases a/c RM100.
Error of original entry – errors was made in i.e. Goods purchased for RM560 was
the books of original entry (journals) then recorded in the journal as RM650 & was
posted to the accounts. posted to the ledger also as RM650.

14. The end
Always learn by heart…then you will gain the
knowledge!