Meaning

Trial Balance is the summary statement showing the balances of all accounts, debit as well as credit, where the total of Debit balances and Credit balances are always equal. The trial balance is prepared with the primary purpose of checking the arithmetical accuracy of accounting records of the business.

Objectives  

Main objectives of preparing Trial Balance are;

(1) To check the arithmetical accuracy of accounting records.

(2) To find out the errors in accounting records.

(3) To facilitate the preparation of final accounts.

How to prepare Trial Balance?

Trial Balance is to be prepared by Balance Method; taking the net balances of ledger accounts, in the form of following statement:

Sr. No. Name of the account L.F. Debit() Credit()

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

31.

32.

33.

Land and Buildings

Business Premises

Motor Vehicles

Plant and Machinery

Equipment

Furniture and Fixtures

Cash in Hand

Cash at Bank

Debtors

Bills Receivable

Stock of Raw Materials

Work in Progress

Stock of Finished Goods

Prepaid Insurance

Purchases

Carriage Inwards

Carriage Outwards

Sales Return

Interest Paid

Commission/Discount Paid

Salaries

Outstanding Interest Earned

Drawings

Capital

Sales

Purchases Return

Long Term Loan

Bills Payable

Creditors

Outstanding Salaries

Advances from Customers

Reserve Fund

Provision for Doubtful Debts

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Xxx

Xxx

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Total xxx xxx

 

The above table can be summarized as following:

Assets accounts —————————————Debit

Expenses/losses accounts —————————Debit

Liabilities accounts ———————————-Credit

Capital account—————————————Credit

Gains/Incomes/Profits accounts——————-Credit

Provision against Asset Account——————-Credit

The condition: Totals of both the sides i.e. Debit Balances and Credit Balances in Trial balance must be equal to ensure the arithmetical accuracy of the accounting books.

There can be cases when this condition is not satisfied and is proof of presence of some error which must be located (found out) before preparing Final Accounts i.e. Financial Statements of the business.

Following steps can be taken to find the error:

1. Check the totals of debit and credit columns of the trial balance.

2. Check the name and amount of the account appearing in the trial balance, with that of the ledger to detect any difference in amount or omission of an account.

3. Check the correctness of balances of individual accounts in the ledger.

4. Check the correctness of the posting in accounts from the subsidiary journals.

5. See, if the difference between the debit and credit columns is divisible by 2, there is a possibility that an amount equal to one-half of the difference may have been posted to the wrong side of another ledger account.

6. There can also be a complete omission of a posting.

7. If the difference is a multiple of 9 or divisible by 9, the mistake could be due to transposition of figures.

If error is not found after all this, use detailed tick mark checking for finding the error.

Rectification of Errors

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