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 for 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 Debit Amount (in Rs) Credit Amount (in Rs) Account Head 1 Account Head 2 Account Head 3 — — — — – – – – – – Total   xxxx xxxx • Header Row The heading 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. • Debit amount This is the amount whose information is extracted from the ledger account. What the debit amount actually means is dependent on the method used for constructing the trial balance. • Credit amount This is the amount whose information is extracted from the ledger account. What the credit amount actually means is dependent on the method used for constructing the trial balance.

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] Dr Cash a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 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         Dr Capital a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs)         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 Dr Furniture a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 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         Dr Rent Paid a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 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         Dr Bank a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 18/06/05 To Cash a/c – 1,50,000 20/06/05 24/06/05 By Machinery a/c By M/s Ramdas       & Bros. 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         Dr Goods/Stock a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 18/06/05 18/06/05 To Cash a/c To M/s Ramdas       & Bros. 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                 Dr M/s Ramdas & Bros. a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 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 Dr Machinery a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 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         Dr Mr. Natekar a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 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         Dr Wages Paid a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 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         Dr Commission Received a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs)         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. Both serve the same purpose. The modern method is a derivative of the traditional method. • Traditional Method The traditional method considers the sub-totals of each ledger account. It is prepared by presenting the sub-totals 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 Debit Amount (in Rs) Credit Amount (in Rs) Cash a/c Capital a/c Furniture a/c Rent Paid a/c Bank a/c Goods/Stock a/c M/s Ramdas & Bros. a/c Machinery a/c Mr. Natekar a/c Wages Paid a/c Commission Received a/c — — — — — — — — — — — 214,500 0 20,000 5,000 1,50,000 20,000 5,000 25,000 8,000 5,000 0 1,90,000 2,00,000 0 0 30,000 20,000 10,000 0 2,000 0 500 Total   4,52,500 4,52,500 • Debit amount Debit amount is the sub-total of the debit column in the Ledger Account. • Credit amount Credit amount is the sub-total of the credit column in the Ledger Account. • Modern Method The modern method considers only the balances of the ledger accounts. It 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 Debit Amount (in Rs) Credit Amount (in Rs) Cash a/c Capital a/c Furniture a/c Rent Paid a/c Bank a/c Goods/Stock a/c M/s Ramdas & Bros. a/c Machinery a/c Mr. Natekar a/c Wages Paid a/c Commission Received a/c — — — — — — — — — — — 24,500 20,000 5,000 1,20,000 25,000 6,000 5,000   2,00,000 5,000 500 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 two amounts (sub-totals), they are set off and only the net balance is written. This balance is nothing but the balance shown by the ledger account. That is the 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 of absence of errors Agreement of Trial Balance is not the full and final proof of 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 Rs. 5,000 may always be set off by a credit balance in another account being shown in excess by Rs. 5,000 or a debit balance in another account being shown less by Rs. 5,000.

Author Credit : The Edifier

... Continued Page 22