Trial Balance Preparation and Purpose

What is a Trial Balance?

A trial balance is a statement of ledger account balances within the Ledger, at a particular instance.

If we balance all the ledger accounts at a particular instance and then prepare a statement of balances we get the Trial Balance.

Trial

  • The act of testing something/Trying something to find out about it
  • test

Trail

  • To lag or linger behind
  • tail

Trial Balance is a statement, not an account

A trial balance is a statement and it has got a conventional format of its own. It is not a Ledger Account.

Trial Balance » Purpose

A trial balance is prepared to check the mathematical/arithmetic accuracy of accounting.

This is the only (main) purpose of the Trial Balance.

Since it is anyhow prepared for a purpose, it is put to some other uses like being used in the preparation of final accounts etc.,

Format of a Trial Balance

The most common format in which we find a trial balance is as below.
Trial Balance of M/s _____ as on _____
Particulars L/F Amount
(Dr)
Amount
(Cr)
Account Head 1
Account Head 2
Account Head 3








Total  

Header Row

The header row contains the heading for the trial balance. It consists of the details relating to name of the organisation and the instance to which the ledger account balances pertain.

Particulars

Each row in the trial balance pertains to the information relating to an account. The name of the Account head is written in the particulars column.

L/F » Ledger Folio

Ledger Folio gives the information relating to the page number in the ledger from which the information relating to the ledger is being extracted.

The information relating to amounts is extracted from the amounts column of the ledger account. The amount used is dependent on the method used for constructing the trial balance.

Debit amount

The amount may be
  • the total of the debit side of the ledger account, identified as debit sub-total earlier.
  • the balance of the ledger account if it has a debit balance, none otherwise.

Credit amount

  • the total of the credit side of the ledger account, identified as credit sub-total earlier.
  • the balance of the ledger account if it has a credit balance, none otherwise.

Illustration » General Ledger

The following is the General Ledger of Mr. Ibrahim, containing all the Ledger accounts within the accounting system.

General Ledger
[Books of Mr. Ibrahim]

Cash a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
15/06/05
19/06/05
24/06/05
24/06/05
To Capital a/c
To Goods/Stock a/c
To Mr. Natekar a/c
To Commission Received a/c



2,00,000
12,000
2,000
500
17/06/05
17/06/05
18/06/05
18/06/05
21/06/05
By Furniture a/c
By Rent Paid a/c
By Bank a/c
By Goods/Stock a/c
By Wages Paid a/c




20,000
5,000
1,50,000
10,000
5,000
  sub-total   2,14,500   sub-total   1,90,000
        25/06/05 By Balance c/d 24,500
  Total   2,14,500   Total   2,14,500
25/06/05 To Balance b/d 24,500        
Capital a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
        15/06/05 By Cash a/c 2,00,000
  sub-total   0   sub-total   2,00,000
25/06/05 To Balance c/d 2,00,000        
  Total   2,00,000   Total   2,00,000
        25/06/05 By Balance b/d 2,00,000
Furniture a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
17/06/05 To Cash a/c 20,000        
  sub-total   20,000   sub-total   0
        25/06/05 By Balance c/d 20,000
  Total   20,000   Total   20,000
25/06/05 To Balance b/d 20,000        
Rent Paid a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
17/06/05 To Cash a/c 5,000        
  sub-total   5,000   sub-total   0
        25/06/05 By Balance c/d 5,000
  Total   5,000   Total   5,000
25/06/05 To Balance b/d 5,000        
Bank a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
18/06/05 To Cash a/c 1,50,000 20/06/05
24/06/05
By Machinery a/c
By M/s Ramdas & Brothers a/c

25,000
5,000
  sub-total   1,50,000   sub-total   30,000
        25/06/05 By Balance c/d 1,20,000
  Total   1,50,000   Total   1,50,000
25/06/05 To Balance b/d 1,20,000        
Goods/Stock a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
18/06/05
18/06/05
To Cash a/c
To M/s Ramdas & Brothers a/c

10,000
10,000
19/06/05
21/06/05
By Cash a/c
By Mr. Natekar a/c

12,000
8,000
  sub-total   20,000   sub-total   20,000
  Total   20,000   Total   20,000
               
M/s Ramdas & Brothers a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
24/06/05 To Bank a/c 5,000 18/06/05 By Goods/Stock a/c 10,000
  sub-total   5,000   sub-total   10,000
25/06/05 To Balance c/d 5,000        
  Total   10,000   Total   10,000
        25/06/05 By Balance b/d 5,000
Machinery a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
20/06/05 To Bank a/c 25,000        
  sub-total   25,000   sub-total   0
        25/06/05 By Balance c/d 25,000
  Total   25,000   Total   25,000
25/06/05 To Balance b/d 25,000        
Mr. Natekar a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
21/06/05 To Goods/Stock a/c 8,000 24/06/05 By Cash a/c 2,000
  sub-total   8,000   sub-total   2,000
        25/06/05 By Balance c/d 6,000
  Total   8,000   Total   8,000
25/06/05 To Balance b/d 6,000        
Wages Paid a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
21/06/05 To Cash a/c 5,000        
  sub-total   5,000   sub-total   0
        25/06/05 By Balance c/d 5,000
  Total   5,000   Total   5,000
25/06/05 To Balance b/d 5,000        
Commission Received a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
        24/06/05 By Cash a/c 500
  sub-total   0   sub-total   500
25/06/05 To Balance c/d 500        
  Total   500   Total   500
        25/06/05 By Balance b/d 500

Preparation of Trial Balance » Methods

There are two methods for preparing a trial balance
  1. Traditional Method and
  2. Modern Method which is a derivative of the traditional method.
Both serve the same purpose.

Traditional Method

The traditional method is prepared by presenting the totals of the debit and credit columns relating to each ledger account in the relevant columns in the trial balance.

Trial Balance
[Traditional Method]

Trial Balance of M/s _____ as on _____
Particulars L/F Amount
(Dr)
Amount
(Cr)
Cash a/c 2,14,500 1,90,000
Capital a/c 0 2,00,000
Furniture a/c 20,000 0
Rent Paid a/c 5,000 0
Bank a/c 1,50,000 30,000
Goods/Stock a/c 20,000 20,000
M/s Ramdas & Brothers a/c 5,000 10,000
Machinery a/c 25,000 0
Mr. Natekar a/c 8,000 2,000
Wages Paid a/c 5,000 0
Commission Received a/c 0 500
Total   4,52,500 4,52,500

Debit amount

Debit amount is the total of the debit column of the Ledger Account.

Credit amount

Credit amount is the total of the credit column in the Ledger Account.

Modern Method

The modern method is prepared by presenting the balance relating to each ledger account in the relevant column in the trial balance.

Trial Balance
[Modern Method]

Trial Balance of M/s _____ as on _____
Particulars L/F Amount
(Dr)
Amount
(Cr)
Cash a/c 24,500
Capital a/c 2,00,000
Furniture a/c 20,000
Rent Paid a/c 5,000
Bank a/c 1,20,000
Goods/Stock a/c
M/s Ramdas & Brothers a/c 5,000
Machinery a/c 25,000
Mr. Natekar a/c 6,000
Wages Paid a/c 5,000
Commission Received a/c 500
Total   2,05,500 2,05,500

Modern method » A modification of the Traditional method

Modern method is a derivative of the traditional method.

Instead of writing down the totals of the debit column and the credit columns, they are set off and only the net balance is written. This balance is nothing but the balance shown by the ledger account.

For this reason, we say "the trial balance is a statement of ledger account balances".

Debit amount

This column has data to be filled only in case of accounts with a debit balance. The data to be filled being the balance of the ledger account with a debit balance.

Credit amount

This column has data to be filled only in case of accounts with a credit balance. The data to be filled being the balance of the ledger account with a credit balance.

Agreement of the Trial Balance

Trial Balance Agrees (Or) Trial Balance is Tallied

Whatever may be method we use for preparing the trial balance, if the total of the debit column and the credit column are the same we say that the trial balance is tallied or the trial balance agrees.

The fact that the trail balance agrees is a preliminary assurance of absence of any mathematical/arithmetic errors in the preparation of the accounts.

Agreement of Trial Balance is not a Conclusive proof absence of errors

Agreement of Trial Balance is not the full and final proof absence of errors, as there is always a chance for hidden errors which can be revealed only on thorough scrutiny of accounts.

Eg : The error relating to a debit balance being shown in excess by 5,000 may always be set off by a credit balance in another account being shown in excess by 5,000 or a debit balance in another account being shown less by 5,000.