Trial Balance Preparation and Purpose

... From Page 20

What is a Trial Balance?

 
 
A trial balance is a statement of ledger account balances within a 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

Meaning = The act of testing something/Trying something to find out about it.

» Trail

Meaning = To lag or linger behind

• 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 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]

DrCash a/cCr
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        

DrCapital a/cCr
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

DrFurniture a/cCr
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        

DrRent Paid a/cCr
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        

DrBank a/cCr
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        

DrGoods/Stock a/cCr
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
               

DrM/s Ramdas & Bros. a/cCr
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

DrMachinery a/cCr
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        

DrMr. Natekar a/cCr
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        

DrWages Paid a/cCr
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        

DrCommission Received a/cCr
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

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