Trial Balance

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.
Preparation of trial balance
• There are different methods of
preparation of trial balance
• Totals method
• Balance method
• Mixed method
Forms of trial balance

Trial Balance as at ……

Serial No. Heads (Names Ledger Debit Credit

of accounts) folio totals totals
Forms of trial balance

Trial Balance as at ……

Serial No. Heads (Names Ledger Debit Credit

of accounts) folio balances balances
Forms of trial balance

Trial Balance as at ……

Serial Heads of LF Debit Credit Debit Credit

No. accounts totals totals balances balances
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
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
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.
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.
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
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
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
Solution
Seri Heads (Names of Ledger Debit Credit
al accounts) folio balances balances
No.
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
Solution
Seri Heads (Names of Ledger Debit Credit
al accounts) folio balances balances
No.
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
Correct the following trial balance
Dr. Cr.
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
Correct the following trial balance
Dr. Cr.
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