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Trial Balance

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Trial balance• It is a bridge between ledger

accounts and final accounts• Trial balance is prepared with debit

and credit balances of ledger accounts to check the arithmetical accuracy of the books.

• It is just a statement and is prepared as on a particular date

• It can be prepared at any time of the year but it must be prepared before preparation of final accounts

• It verifies the fundamental principle of double entry system i.e. equality of debit and credit.

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Preparation of trial balance• There are different methods of

preparation of trial balance• Totals method• Balance method• Mixed method

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Forms of trial balance

Serial No.

Heads (Names of accounts)

Ledger folio

Debit totals

Credit totals

Trial Balance as at ……

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Forms of trial balance

Serial No.

Heads (Names of accounts)

Ledger folio

Debit balances

Credit balances

Trial Balance as at ……

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Forms of trial balance

Serial No.

Heads ofaccounts

LF Debit totals

Credit totals

Debit balances

Credit balances

Trial Balance as at ……

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Hints for preparation of trial balance• Only those ledger accounts which

show balances should appear in the trial balance.

• If a ledger account shows a debit balance it should appear in the debit column of the trial balance.

• If a ledger account shows a credit balance it should appear in the credit column of the trial balance.

• Capital account should show a credit balance

• Drawings account should show a debit balance

8/13

Hints for preparation of trial balance• Sundry debtors account will show a

debit balance• Sundry creditors account will show a

credit balance• Bank account may show a debit or

credit balance. If it shows a debit balance, it means cash at bank. If it shows a credit balance, it means bank overdraft.

• Cash account will always show a debit balance which means cash in hand

• Purchases account will show a debit balance

• Sales account will show a credit balance

• Purchases returns account will show a credit balance

• Sales returns account will show a debit balance

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Hints for preparation of trial balance• Opening stock account will show a

debit balance• Investment account will show a

debit balance• Accounts of fixed assets show a

debit balance• Bills receivable account will show a

debit balance• Bills payable account will have a

credit balance• Accounts of expenses and losses will

show a debit balance• Accounts of incomes and gains will

show a credit balance• Closing stock does not appear in the

trial balance

Advantages of trial balance• All the balances of various

accounts are available at a single place

• Arithmetic accuracy of books of accounts can be ascertained

• It is the basis for preparation of profit and loss account

• It is the proof that all entries have been recorded on the basis of double entry system.

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Limitations of trial balance• Certain errors are not revealed

inspite of the trial balance having balanced

• If the trial balance is erroneous, the final accounts will not be accurate

• This can be used only when double entry system of bookkeeping is used.

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Undisclosed errors • Omission of an entry in a

subsidiary book• A wrong entry in a subsidiary

book• Posting to the correct side but

in a wrong account• Errors of principle

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13/13

Problems • From the following extracted from

the books of Gopal as on 31.12.2006. Prepare a trial balance

• Gopal’s capital 7000• Purchases 8000• Rent paid 240• gopal’s drawings 400• Bills receivable 1200• Opening stock 1000• Purchases returns 280• Sales returns 160• Plant and machinery 4000• Sales 9600• Sundry debtors 5600

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Problems (cont.)• Furniture 500• Salaries 720• Sundry creditors 5600• Carriage 100• Insurance 40• Cash in hand 100• Cash at bank 1950• Commission paid 40• Bills payable 1580• Discount received 30• Discount allowed 40

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Solution Serial No.

Heads (Names of accounts)

Ledger folio

Debit balances

Credit balances

1 Gopal’s capital 7000

2 Purchases 8000

3 Rent paid 240

4 Gopal’s drawings 400

5 Bills receivable 1200

6 Opening stock 1000

7 Purchases returns 280

8 Sales returns 160

9 Plant and machinery 4000

10 Sales 9600

11 Sundry debtors 5600

12 Furniture 500

13 Salaries 720

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Solution Serial No.

Heads (Names of accounts)

Ledger folio

Debit balances

Credit balances

14 Sundry creditors 5600

15 Carriage 100

16 Insurance 40

17 Cash in hand 100

18 Cash at bank 1950

19 Commission paid 40

20 Bills payable 1580

21 Discount received 30

22 Discount allowed 40

24090 24090

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Correct the following trial balance

Capital 24000

Stock as on 1.1.2006 8500

Furniture 2600

Purchases 8950

Cash at bank 7300

Carriage 300

Sales 22500

Buildings 12000

Return inwards 1900

Return outwards 350

Trade expenses 1000

Discount received 970

Salary 3000

Office rent 2270

60020 35620

Dr. Cr.

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Correct the following trial balance

Capital 94000

Purchases 60000

Reserve fund 20000

Sales 100000

Purchases returns 1000

Sales return 2000

Opening stock 30000

Closing stock 40000

Expenses 20000

Outstanding expenses 2000

Bank balance 5000

Assets 50000

Debtors 80000

Creditors 30000

Suspense a/c 10000

272000 272000

Dr. Cr.