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 used for a trial balance is as below.
| Particulars | L/F | Amount (Dr) | Amount (Cr) |
|---|---|---|---|
| Account Head 1 Account Head 2 Account Head 3 | — — — — | – – – | – – – |
| Total | – | – |
Heading
The heading for the trial balance is made up using details relating to name of the organisation and the instance to which the ledger account balances pertain.
Header Row
The header row consists of the labels for the information present in the trial balance.
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 in ledger balancing)
- 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 in ledger balancing)
- the balance of the ledger account if it has a credit balance, none otherwise.
Illustration - General Ledger
General Ledger
[Books of Mr. Ibrahim]
| Dr Cr | |||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J/F | Amount | Date | Particulars | J/F | Amount |
| 15/06/_5 19/06/_5 24/06/_5 24/06/_5 | 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/_5 17/06/_5 18/06/_5 18/06/_5 21/06/_5 | 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 | 25/06/_5 | Sub Total By Balance c/d | – | 1,90,000 24,500 | ||
| tl | 2,14,500 | tl | 2,14,500 | ||||
| 25/06/_5 | To Balance b/d | – | 24,500 | ||||
| Dr Cr | |||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J/F | Amount | Date | Particulars | J/F | Amount |
| 15/06/_5 | By Cash a/c | – | 2,00,000 | ||||
25/06/_5 | Sub Total To Balance c/d | – | 0 2,00,000 | Sub Total | 2,00,000 | ||
| tl | 2,00,000 | tl | 2,00,000 | ||||
| 25/06/_5 | By Balance b/d | – | 2,00,000 | ||||
| Dr Cr | |||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J/F | Amount | Date | Particulars | J/F | Amount |
| 17/06/_5 | To Cash a/c | – | 20,000 | ||||
Sub Total | 20,000 | 25/06/_5 | Sub Total By Balance c/d | – | 0 20,000 | ||
| tl | 20,000 | tl | 20,000 | ||||
| 25/06/_5 | To Balance b/d | – | 20,000 | ||||
| Dr Cr | |||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J/F | Amount | Date | Particulars | J/F | Amount |
| 17/06/_5 | To Cash a/c | – | 5,000 | ||||
Sub Total | 5,000 | 25/06/_5 | Sub Total By Balance c/d | – | 0 5,000 | ||
| tl | 5,000 | tl | 5,000 | ||||
| 25/06/_5 | To Balance b/d | – | 5,000 | ||||
| Dr Cr | |||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J/F | Amount | Date | Particulars | J/F | Amount |
| 18/06/_5 | To Cash a/c | – | 1,50,000 | 20/06/_5 24/06/_5 | By Machinery a/c By M/s Ramdas & Brothers a/c | – – | 25,000 5,000 |
Sub Total | 1,50,000 | 25/06/_5 | Sub Total By Balance c/d | – | 30,000 1,20,000 | ||
| tl | 1,50,000 | tl | 1,50,000 | ||||
| 25/06/_5 | To Balance b/d | – | 1,20,000 | ||||
| Dr Cr | |||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J/F | Amount | Date | Particulars | J/F | Amount |
| 18/06/_5 18/06/_5 | To Cash a/c To M/s Ramdas & Brothers a/c | – – | 10,000 10,000 | 20/06/_5 24/06/_5 | By Machinery a/c By Mr. Natekar a/c | – – | 12,000 8,000 |
Sub Total | 20,000 | Sub Total | 20,000 | ||||
| tl | 20,000 | tl | 20,000 | ||||
| Dr Cr | |||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J/F | Amount | Date | Particulars | J/F | Amount |
| 24/06/_5 | To Bank a/c | – | 5,000 | 18/06/_5 | By Goods/Stock a/c | – | 10,000 |
25/06/_5 | Sub Total To Balance c/d | – | 5,000 5,000 | Sub Total | 10,000 | ||
| tl | 10,000 | tl | 10,000 | ||||
| 25/06/_5 | By Balance b/d | – | 5,000 | ||||
| Dr Cr | |||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J/F | Amount | Date | Particulars | J/F | Amount |
| 20/06/_5 | To Bank a/c | – | 25,000 | ||||
Sub Total | 25,000 | 25/06/_5 | Sub Total By Balance c/d | – | 0 25,000 | ||
| tl | 25,000 | tl | 25,000 | ||||
| 25/06/_5 | To Balance b/d | – | 25,000 | ||||
| Dr Cr | |||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J/F | Amount | Date | Particulars | J/F | Amount |
| 21/06/_5 | To Goods/Stock a/c | – | 8,000 | 24/06/_5 | By Cash a/c | – | 2,000 |
Sub Total | 8,000 | 25/06/_5 | Sub Total By Balance c/d | – | 2,000 6,000 | ||
| tl | 8,000 | tl | 8,000 | ||||
| 25/06/_5 | To Balance b/d | – | 6,000 | ||||
| Dr Cr | |||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J/F | Amount | Date | Particulars | J/F | Amount |
| 21/06/_5 | To Cash a/c | – | 5,000 | ||||
Sub Total | 5,000 | 25/06/_5 | Sub Total By Balance c/d | – | 0 5,000 | ||
| tl | 5,000 | tl | 5,000 | ||||
| 25/06/_5 | To Balance b/d | – | 5,000 | ||||
| Dr Cr | |||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J/F | Amount | Date | Particulars | J/F | Amount |
| 24/06/_5 | By Cash a/c | – | 500 | ||||
25/06/_5 | Sub Total To Balance c/d | – | 0 500 | Sub Total | 500 | ||
| tl | 500 | tl | 500 | ||||
| 25/06/_5 | By Balance b/d | – | 500 | ||||
Preparation of Trial Balance - Methods
There are two methods for preparing a trial balance
- Traditional Method and
- 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]
| 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]
| 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 arithmetic or mathematical errors in accounting, in preparation as well as derivation.
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 the books 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.