Note on Trial Balance

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Trial Balance
Trial Balance

A trial balance is a statement of debit and credit balance of the ledger accounts which is prepared in order to prove the arithmetical accuracy of the books of account. It is prepared after the preparation of various personal, real and nominal accounts. It is also called the summary of assets, capitals, liabilities, expenses, income, etc. drawn from the ledger account.

The following are the main definitions of trial balance:

“Trial balance is the list of debit and credit balances taken out from the ledger, it also includes the balances of cash and bank taken from cash book.” – R. N. Carter

“Trial balance is a list of balances debit or credit standing in the books of the trader at any given date.” – J. R. Batliboi

Objectives of Trial Balance

The following are the main objectives of a trial balance:

  1. To obtain summary information
    It provides summary information of all the ledger accounts in one place. It presents the balances of all the assets, liabilities, capital, incomes and expenses relating to a particular date.

  2. To help in making comparison and decision
    It helps in comparing the balances of assets, liabilities, capital, incomes, and expenses between two different periods. Such comparison helps in making a proper judgment of different activities of the business and arriving at important decisions.

  3. To check arithmetical accuracy
    Accuracy
    Accuracy

    The trial balance checks an arithmetical accuracy of the books of accounts. It checks whether the total of debit balances equals the total of credit balances or not. If the trial balance agrees, it proves the arithmetical accuracy. If it does not agree, it indicates the existence of errors in the books of accounts, which are to be located and rectified.

  4. To facilitate for preparing the final accounts
    It serves the basis for preparing the final accounts. From the trial balance, the balances of incomes and expenses are placed on the trading and profit and loss accounts and balances of assets, liabilities and capital are placed on the balance sheet.

  5. To help for locating and rectifying errors
    It helps to locate the accounting errors at an early stage. Its disagreement is the signal for the existence of accounting errors in the books of accounts, which compels the accountant to locate and rectify them in time.

  6. To help in minimizing errors and frauds
    It helps in minimizing the different types of accounting errors and frauds. If the errors and frauds are committed, the trial balance disagrees. Hence, it gives moral pressure to the accounting personnel to maintain books of accounts with great care and honesty.

Advantages of Trial Balance
Advantages of Trial Balance

Advantages

The trial balance is advantageous to prepare because of the following reasons:

  1. It supplies in one place ready reference of all the balances of all the ledger accounts.
  2. It helps to prepare final accounts.
  3. If any error is found, it can easily be rectified
  4. It helps in the internal audit by supplying complete, reliable and accurate accounting information.
  5. It proves the authenticity of the balance sheet prepared by the business on the given date.
  6. It proves the arithmetical accuracy of accounting entries in the ledger.

Procedures of preparation

The trial balance can be prepared on daily or monthly or yearly basis as per the requirement of the business. It is prepared on a given date in a separate sheet of paper. It is prepared either using total method or balance method or compound method.

  1. Total method
    in this method, the debit and credit of each ledger accounts is written in trial balance. The trial balance in this method should be prepared immediately after the completion of postings from journal and subsidiary books ledger.
  2. Balance method
    In this method, the balance of each ledger account is entered in the trial balance. The debit balances are entered in debit side and credit balances are entered in credit side. It is prepared after balancing the ledger.
  3. Compound method
    The compound method is the combination of total and balance methods, which is also known as total cum balance method. Under this method, the trial balance with total and balance of all the ledger accounts.

Specimen of Trial Balance

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Each column of the trial balance records the information as follows: -

  1. Serial number (S.No.): It records the serial number of the account.
  2. Heads of account: It records the name of the ledger account.
  3. Ledger Folio (LF): It records the page number of the ledger where the concerned account is located.
  4. Debit balance: It records the amount of the account having the debit balance.
  5. Credit balance: It records the amount of the account having the credit balance.

  • A trial balance is a statement of debit & credit balance of the ledger accounts which is prepared in order to prove the arithmetical accuracy which is prepared in order to prove the arithmetical accuracy of the books of account. 
  • Under the total method, the trial balance is prepared with the debit and credit totals of all the ledger accounts.
  • Under the balance method, the trial balance is prepared with the debit and credit balances of all the ledger accounts.
  • Under the compound method, the trial balance is prepared with the debit and credit totals and balances of all the ledger accounts.
  • The compound method is the combination of total and balance methods, which is also known as total cum balance method.
.

Very Short Questions

A trial balance is a statement of debit & credit balance of the ledger accounts which is prepared in order to prove the arithmetical accuracy of the books of account. It is prepared after the preparation of various personal, real & nominal accounts. It is also called the summary of assets, capitals, liabilities, expenses, income, etc. drawn from the ledger account.

According to R. N. Carter,“Trial balance is the list of debit and credit balances, taken out from the ledger; it also includes the balances of cash and bank taken from cash book.”

According to J. R. Batliboi,“Trial balance is a list of balances debit or credit standing in the books of a trader at any given date.”

From the above definitions, it is obvious that a trial balance is a list of debit and credit balances of all the ledger accounts extracted on a given date. It is not an account rather only a statement. It is not a part of books of accounts maintained under double entry system. It is the statement of debit and credit balances of all the assets, liabilities, capital, incomes and expenses. It is the prepared in a separate sheet of paper to verify the arithmetical accuracy of books of account.

A trial balance is prepared for following reasons: -

  1. To obtain summary information
    It provides summary information of all the ledger accounts in one place. It presents the balances of all the assets, liabilities, capital, incomes and expenses relating to a particular date.

  2. To help in making comparison and decision
    It helps in comparing the balances of assets, liabilities, capital, incomes, and expenses between two different periods. Such comparison helps in making aproper judgment of different activities of the business and arriving at important decisions.

  3. To check arithmetical accuracy
    The trial balance checks an arithmetical accuracy of the books of accounts. It checks whether the total of debit balances equals the total of credit balances or not. If the trial balance agrees, it proves the arithmetical accuracy. If it does not agree, it indicates the existence of errors in the books of accounts, which are to be located and rectified.

  4. To facilitate for preparing the final accounts
    It serves the basis for preparing the final accounts. From the trial balance, the balances of incomes and expenses are placed on the trading and profit and loss accounts and balances of assets, liabilities and capital are placed on the balance sheet.

  5. To help for locating and rectifying errors
    It helps to locate the accounting errors at theearly stage. It's disagreement is the signal for the existence of accounting errors in the books of accounts, which compels the accountant to locate and rectify them in time.

  6. To help in minimizing errors and frauds
    It helps in minimizing the different types of accounting errors and frauds. If the errors and frauds are committed, the trial balance disagrees. Hence, it gives moral pressure to the accounting personnel to maintain books of accounts with great care and honesty.

The following are the advantages of trial balance:

  1. It verifies the arithmetical accuracy of recording and posting of financial transactions.
  2. It facilitates for preparing final accounts.
  3. It helps in locating, preventing and rectifying errors and frauds.
  4. It helps in the internal audit by supplying complete, reliable and accurate accounting information.
  5. It proves the authenticity of the balance sheet prepared by the business on the given date.
  6. It presents the position of all the accounts in one place.

The trial balance can be prepared on daily or monthly or yearly basis as per the requirement of the business. It is prepared on a given date in a separate sheet of paper. It is prepared either using total method or balance method or compound method. The following are the procedures of preparing trial balance:

  1. Total method
    Under the total method, the trial balance is prepared with the debit and credit totals of all the ledger accounts.
  2. Balance method
    Under the balance method, the trial balance is prepared with the debit and credit balances of all the ledger accounts.
  3. Compound method
    Under the compound method, the trial balance is prepared with the debit and credit totals and balances of all the ledger accounts. Hence, the compound method is the combination of total and balance methods, which is also known as total cum balance method.

Solution:

S. No.

Heads of Account

LF

Debit balance

Credit balance

1.

Opening Stock

10,000

2.

Purchases

20,000

3.

Sales

36,000

4.

Sundry debtors

5,000

5.

Sundry creditors

6,000

6.

Sales return

500

7.

Purchase return

1,000

8.

Capital

20,000

9.

Drawing

1,500

10.

Cash balance

26,000

Total

63,000

63,000

Solution:

S. No.

Heads of Account

LF

Debit balance

Credit balance

1.

Opening stock

10,000

2.

Furniture

15,000

3.

Purchases

30,000

4.

Salary

15,000

5.

Sales

50,000

6.

Carriage

5,000

7.

Capital

20,000

8.

Creditors

5,000

Total

75,000

75,000

Solution:

S. No.

Heads of Account

LF

Debit balance

Credit balance

1.

Capital

50,000

2.

Bank

30,000

3.

Cash

15,000

4.

Bills payable

10,000

5.

Land and building

45,000

6.

Reserve fund

25,000

7.

Creditors

15,000

8.

Debtors

10,000

Total

1,00,000

1,00,000

Solution:

S. No.

Heads of Account

LF

Debit balance

Credit balance

1.

Capital

3,22,000

2.

Sales

12,00,000

3.

Machinery and Equipment

3,71,000

4.

Purchases

9,70,000

5.

Drawings

83,000

6.

Bank loan

56,000

7.

Reserve fund

91,000

8.

Creditors

1,50,000

9.

Depreciation

1,65,000

10.

Bills receivable

2,30,000

18,19,000

18,19,000

Solution:

Trial Balance

As on 31st Chaitra

S. No.

Heads of Account

LF

Debit balance

Credit balance

1.

Furniture

30,000

2.

Sales

2,12,000

3.

Purchases

2,50,000

4.

Discount received

5,000

5.

Debtors

5,000

6.

Bank loan

80,000

7.

Purchase return

15,000

8.

Sales return

7,000

9.

Depreciation

12,000

10.

Bills receivable

8,000

Total

3,12,000

3,12,000

Solution:

S. No.

Heads of Account

LF

Debit balance

Credit balance

1.

Capital

1,25,000

2.

Sales

3,60,000

3.

Purchase

2,00,000

4.

Discount

2,000

5.

Salary

70,000

6.

Advertisement

30,000

7.

Advance income

15,000

8.

Machine

1,98,000

Total

5,00,000

5,00,000

Solution:

S. No.

Heads of Account

LF

Debit balance

Credit balance

1.

Capital

2,50,000

2.

Sales

3,30,000

3.

Bank loan

20,000

4.

Depreciation

10,000

5.

Purchase

4,00,000

6.

Drawing

25,000

7.

Creditors

25,000

8.

Machine

1,90,000

Total

6,25,000

6,25,000

Solution:

S. No.

Heads of Account

LF

Debit balance

Credit balance

1.

Sales

2,00,000

2.

Sales return

60,000

3.

Outstanding expenses

25,000

4.

Furniture

80,000

5.

Purchases

40,000

6.

Creditors

15,000

7.

Advance income

40,000

8.

Machinery

1,00,000

Total

2,80,000

2,80,000

Solution:

S. No.

Heads of Account

LF

Debit balance

Credit balance

1.

Capital

2,10,000

2.

Wages

70,000

3.

Purchases

1,45,000

4.

Bank balance

1,80,000

5.

Opening stock

40,000

6.

Commission received

6,000

7.

Sales

1,89,000

8.

Creditors

30,000

Total

4,35,000

4,35,000

Solution:

S. No.

Heads of Account

LF

Debit balance

Credit balance

1.

Opening stock

5,70,000

2.

Purchase

3,30,000

3.

Commission received

11,000

4.

Depreciation

20,000

5.

Sales

6,80,000

6.

Purchase return

1,80,000

7.

Creditors

1,59,000

8.

Wages

1,10,000

Total

10,30,000

10,30,000

0%
  • The objective of preparing the trail balance is ______.

    all the options are correct


    to help in minimizing errors and frauds


    to check arithmetical accuracy


    to obtain summary information


  • "Trail balance is a list of balances debit or credit standing in the books of a trader at any given date." Who said this?

    R. Pickle


    R. N. Carter


    J. R. Batliboi


    A. N. Agrawala


  • The trial balance ______.

    is used to prove that there are no errors in the journal or ledger.


    provides a listing of the balance of each account in active use.


    is a formal financial statement.


    provides a listing of every account in the chart of accounts.


  • The trail balance helps in minimizing the different types of accounting ______.

    mistakes


    frauds


    errors


    all the options are correct


  • The trial balance serves the basis for preparing the ______.

    journal


    final accounts


    ledger


    accounting equation


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