A trial balance is a financial statement that lists the debit and credit balances of all accounts in the general ledger. It is prepared to check the arithmetic accuracy of the ledger accounts and help detect errors. The trial balance is not a conclusive proof of accuracy as certain errors may remain undetected even if the debit and credit totals match. Common errors include omissions, incorrect postings, or wrong account balances. If errors cannot be found, a suspense account is used to temporarily balance the trial balance.
2. MEANING AND DEFINITION
A trial balance is a bookkeeping worksheet in
which the balance of all ledgers are compiled
into debit and credit account column totals that
are equal.
A Trail Balance is the list of debit and credit
balances, taken out from ledger it also include
the balance of cash and bank taken from the
cash book. -
Carter
3. FEATURES OF TRIAL BALANCE
1. It includes balance of all ledger accounts and
cash book.
2. It is not a part of ledger account, it is a statement.
3. It is prepared to test the arithmetic accuracy of
ledger account.
4. It can be prepared at any date on which
accounts are closed and balanced. But it is usually
prepared at the end of the accounting year.
4. OBJECTIVES OF TRIAL BALANCE
1. It ensures that the posting from the ledgers is
done correctly. If there are any arithmetic errors in
the accounting then this will get reflected in the
trial balance. And we can determine this when the
total of the debit column and the credit column do
not match.
2. Trial balance will also help in the preparation of the
final accounts. The balances for
the financial statements are taken from the trial
balance.
Contd.
5. 3. It will also detect clerical errors, like a fault in
posting, mixing up of figures, etc.
4. the trial balance will also serve as a useful
summary of all accounting records. It is a
summary of all the ledger accounts of a firm.
6. PREPARATION OF TRIAL BALANCE
1 .Prepare on a fixed date . It is headed as Trial
balance as on …
2. It has five columns –
Serial number
Particular - It contain name of various accounts.
Ledger folio – It is written against each amount to
ensure from where the balance of ledger account has
been taken.
Debit amount – All accounts having debit balance
are recorded.
Credit amount – All account having credit balance
are recorded.
3. There is not set order of mentioning accounts.
7. FORMAT OF TRIAL BALANCE
Company name
Trail Balance
as at …………
S. No. Particulars L.F Dr. amount Cr.
amount
Total
8. RULES FOR PREPARATION OF
TRIAL BALANCE
While preparation of trial balances we must take care of
the following rules/points
1] The balances of the following accounts are always
found on the debit column of the trial balance
-Assets
-Expense Accounts
-Drawings Account
-Cash Balance
-Bank Balance
-Any losses
Contd
9. 2] And the following balances are placed on the credit
column of the trial balance
-Liabilities
-Income Accounts
-Capital Account
-Profits
3] Closing stock is usually not shown in Trail Balance. It
is shown below the trial balance as an additional
information.
It represent the unsold stock out of total opening stock
and purchase. However it can appear in trial balance by
making adjustment in purchase by passing following
entry. Closing stock A/C Dr.
To Purchase A/C
10. METHODS OF PREPARING TRIAL
BALANCE
It can be prepared in two ways-
(1) Balance Method – Under this method, all the
ledger accounts including cash book are balanced
and only the accounts having debit or credit
balances are recorded in trial balance ignoring the
accounts having no balance .
(2) Total Amount Method – Under this method,
total of each side of account is recorded in Trail
Balance.
11. PREPARE A TRIAL BALANCE FROM THE FOLLOWING BALANCE EXTRACTED
FROM THE BOOKS OF MOHAN LAL AND SONS ON 31ST MARCH 2020.
Opening stock
Purchase
Sales
Purchase return
Sales return
Capital
Drawing
Loan from ram
Wages
Salaries
Plant and
machinery
Debtors
Creditors
Discount (Dr.)
Bills Receivable
Cash
Bank Overdraft
Furniture
Rs.
28500
45000
65400
800
1000
100000
4000
20000
1000
10000
14200
42000
22000
12000
500
10000
9000
4000
15000
12. Trial Balance
as on 31st March, 2019
S. No Particulars L.F Dr. Amount (Rs.) Cr. Amount
(Rs.)
1. Opening Stock 28500
2. Purchase 45000
3. Sales
65400
4. Purchase Return
800
5. Sales Return 1000
6. Capital
100000
7. Drawing 4000
8. Loan from Ram
20000
9. Interest on loan 1000
10. Wages 10000
11. Salaries 14200
12. Plant & Machinery 42000
13. Debtors 22000
14. Creditors
12000
15. Discount 500
16. Bill Receivable 10000
202200 202200
13. IS THE AGREEMENT OF TRIAL BALANCE A
CONCLUSIVE PROOF OF ACCURACY ?
Through the trial balance helps to show the
arithmetic accuracy of the book of accounts, it is
possible only when the account has not committed
any error.
Out of the errors made, only certain errors can be
disclosed by the disagreement of trial balance, and
even the trial balance may agree without disclosing
certain errors made.
Hence, the trial balance, is not regarded as
conclusive proof of correctness of books of
accounts maintained.
14. ERRORS
1. Error of Omission – It this a transaction happened but was
not recorded in the books of accounts
2. Error of Principle – Here accounting entries recorded in
the incorrect account.
3. Error of Commission - Its is an error that occurs when
entries are recorded in debit or credit to the correct
account but to the wrong subsidiary account or ledger.
4. Compensating error - A compensating error is an
accounting error that offsets another accounting error.
For example, the wages expense could be too high by
Rs.2,000 due to one error, while the cost of goods sold
could be too low by Rs.2,000 due to a compensating error.
15. DIFFERENCE IN TRIAL BALANCE
Very often two side of trial balance do not tally. It may result
due to following mistake -
An item omitted to be posted into ledger from subsidiary
books.
Posting of wrong amount to ledger.
Posting an amount to the wrong side of ledger account.
Wrong addition or balancing of ledger accounts.
Wrong totaling of subsidiary books.
An item in the subsidiary book posted twice in the ledger
account.
Balance of some account to be written on the wrong side
of trial balance.
An error in totaling of trial balance.
16. SUSPENSE ACCOUNT
If all the efforts made to locate the errors, fail, trial
balance may be temporarily be balanced by
transferring the amount to suspense account.
Suspense account be put at shorter side e.g. If
credit total is higher, suspense account will have
debit balance and if debit total is higher, suspense
account will have credit balance.