The document discusses the trial balance process. It explains that a trial balance is a list of account balances arranged by debit and credit totals, which should be equal. Drawing up a trial balance involves balancing individual accounts and listing balances in the appropriate debit or credit column. Common errors like addition mistakes may still allow a trial balance to balance. Closing inventory is noted separately rather than included in account balances. The trial balance forms the basis for financial statements.

1. The Trial BalanceThe Trial BalanceThe Trial BalanceThe Trial Balance
DBS3024 BUSINESS TRANSACTIONDBS3024 BUSINESS TRANSACTION
by
Stephen Ong
Visiting Fellow, Birmingham City
University Business School
Visiting Professor, Shenzhen
University

2. Today’s OverviewToday’s Overview

3. 1 - 3
Learning objectivesLearning objectives
After this lecture, you should be able to:After this lecture, you should be able to:
 Prepare a trial balance from aPrepare a trial balance from a set ofset of
accountsaccounts
 Explain why the debit and credit trialExplain why the debit and credit trial
balancebalance totals should equaltotals should equal one anotherone another
 Explain why some of theExplain why some of the possible errorspossible errors
that can be made when double entries arethat can be made when double entries are
being entered in the accounts do notbeing entered in the accounts do not
prevent the trial balance from ‘balancing’prevent the trial balance from ‘balancing’
 Describe uses for a trial balance other thanDescribe uses for a trial balance other than
toto check for double entry errorscheck for double entry errors

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11
Double entry book keepingDouble entry book keeping

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Review of double entry bookkeepingReview of double entry bookkeeping
 For eachFor each debit entry there is a credit entrydebit entry there is a credit entry
and for eachand for each credit entry there is a debitcredit entry there is a debit
entry.entry.
 The total of all the items recorded in all theThe total of all the items recorded in all the
accounts on the debit sideaccounts on the debit side should equalshould equal
the total of all the items recorded on thethe total of all the items recorded on the
credit side of the accounts.credit side of the accounts.
 ToTo checkcheck that there is a matching creditthat there is a matching credit
entry for every debit entry, we prepare aentry for every debit entry, we prepare a
trial balance.trial balance.

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22
The Trial BalanceThe Trial Balance

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The trial balanceThe trial balance
The trial balance is a list of accountThe trial balance is a list of account
balances arranged according to whetherbalances arranged according to whether
they are debit balances or credit balances.they are debit balances or credit balances.

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Drawing up a trial balanceDrawing up a trial balance
The first stage is to balance each T-account.The first stage is to balance each T-account.

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Drawing up a trial balanceDrawing up a trial balance
(Continued)(Continued)

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The second stage is to enter the accountThe second stage is to enter the account
balances into the appropriate column.balances into the appropriate column.
Drawing up a trial balanceDrawing up a trial balance
(Continued)(Continued)

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Drawing up a trial balanceDrawing up a trial balance
(Continued)(Continued)

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 The trial balance always has theThe trial balance always has the date ofdate of
the last day of the accounting periodthe last day of the accounting period toto
which it relates. It is a snapshot of thewhich it relates. It is a snapshot of the
balances on the ledger accounts at thatbalances on the ledger accounts at that
date.date.
 The totals of the two columns mustThe totals of the two columns must alwaysalways
match.match.
 A trial balance can be drawn up at anyA trial balance can be drawn up at any
time but it is normal practice to preparetime but it is normal practice to prepare
one at the end of an accounting periodone at the end of an accounting period
before preparing an income statement andbefore preparing an income statement and
statement of financial position.statement of financial position.
Drawing up a trial balanceDrawing up a trial balance
(Continued)(Continued)

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33
Common ErrorsCommon Errors

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Trial balances and errorsTrial balances and errors
 It is easy to assume that if the trial balanceIt is easy to assume that if the trial balance
balances, the entries in the accounts mustbalances, the entries in the accounts must
be correct. However, there arebe correct. However, there are severalseveral
types of errortypes of error that will not affect thethat will not affect the
balancing of a trial balance.balancing of a trial balance.
 Errors that are revealed include:Errors that are revealed include:
1.1. addaddition errors;ition errors;
2.2. using one figure for the debitusing one figure for the debit entryentry andand
another for the credit entry;another for the credit entry;
3.3. entering onlyentering only one sideone side of the transaction.of the transaction.

15. 1 - 15
Inventory in the trial balanceInventory in the trial balance
 TheThe closing inventory figureclosing inventory figure is notis not
found in an account in the ledger andfound in an account in the ledger and
so does not appear in the trialso does not appear in the trial
balance. It is noted underneath thebalance. It is noted underneath the
total figure and incorporated into thetotal figure and incorporated into the
financial statements later.financial statements later.
 Opening inventoryOpening inventory is recorded in ais recorded in a
ledger account and so would beledger account and so would be
included in a trial balance prepared.included in a trial balance prepared.

16. 1 - 16
Learning outcomesLearning outcomes
You should have now learnt:You should have now learnt:
1.1. How toHow to prepare a trial balanceprepare a trial balance
2.2. That trial balances are one form ofThat trial balances are one form of
checking thechecking the accuracy of entriesaccuracy of entries in thein the
accountsaccounts
3.3. ThatThat errorserrors can be made in the entries tocan be made in the entries to
the accounts that will not be shown up bythe accounts that will not be shown up by
the trial balancethe trial balance
4.4. That the trial balance is used as the basisThat the trial balance is used as the basis
forfor preparing income statements andpreparing income statements and
statements of financial positionstatements of financial position

17. Resources : Core ReadingResources : Core Reading
 Wood, Frank and Robinson, SheilaWood, Frank and Robinson, Sheila
(2009)(2009) Bookkeeping and AccountsBookkeeping and Accounts ,7,7thth
Edition, Pearson/ FT Prentice HallEdition, Pearson/ FT Prentice Hall
 Wood, Frank and Sangster, Alan
(2012) Business Accounting ,12th
Edition, Pearson/ FT Prentice Hall
 Fortes, Hilary (2011) Accounting
Simplified , Pearson/ FT Prentice Hall

18. QUESTIONS?QUESTIONS?