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2. MEANING AND DEFINITION

@ A trial balance is a bookkeeping worksheet in
which the balance of all ledgers are compiled
into debit and credit account column totals that
are equal.

® A Trail Balance is the list of debit and credit
balances, taken out from ledger it also include
the balance of cash and bank taken from the
cash book. -
Carter

3. FEATURES OF TRIAL BALANCE

1. It includes balance of all ledger accounts and
cash book.

2. It is not a part of ledger account, it is a statement.

3. It is prepared to test the arithmetic accuracy of
ledger account.

4. It can be prepared at any date on which
accounts are closed and balanced. But it is usually
prepared at the end of the accounting year.

4. OBJECTIVES OF TRIAL BALANCE

1. It ensures that the posting from the ledgers is
done correctly. If there are any arithmetic errors in
the accounting then this will get reflected in the
trial balance. And we can determine this when the
total of the debit column and the credit column do
not match.

2. Trial balance will also help in the preparation of the
final accounts. The balances for
the financial statements are taken from the trial
balance.

Contd.

5. 3. It will also detect clerical errors, like a fault in
posting, mixing up of figures, etc.

4. the trial balance will also serve as a useful
summary of all accounting records. It is a
summary of all the ledger accounts of a firm.

6. PREPARATION OF TRIAL BALANCE

1 .Prepare on a fixed date . It is headed as Trial
balance as on ...

2. It has five columns —

= Serial number

= Particular - It contain name of various accounts.
= Ledger folio — It is written against each amount to
ensure from where the balance of ledger account has
been taken.

" Debit amount — All accounts having debit balance
are recorded.

= Credit amount — All account having credit balance
are recorded.

3. There is not set order of mentioning accounts.

7. FORMAT OF TRIAL BALANCE

Company name
Trail Balance

IL

8. 2] And the following balances are placed on the credit
column of the trial balance

-Liabilities

-Income Accounts

-Capital Account

-Profits

3] Closing stock is usually not shown in Trail Balance. lt
is shown below the trial balance as an additional
information.

lt represent the unsold stock out of total opening stock
and purchase. pida it can appear in trial balance by
making adj sala wing
entry. Closing stock A/C

To Purchase A/C

9. METHODS OF PREPARING TRIAL
BALANCE

It can be prepared in two ways-

(1) Balance Method — Under this method, all the
ledger accounts including cash book are balanced
and only the accounts having debit or credit
balances are recorded in trial balance ignoring the
accounts having no balance .

(2) Total Amount Method — Under this method,
total of each side of account is recorded in Trail
Balance.

10. ZO==0MmC

PREPARE A TRIAL BALANCE FROM THE FOLLOWING BALANCE EXTRACTED
FROM THE BOOKS OF MOHAN LAL AND SONS ON 3157 MARCH 2020.

11. S
O
L
U
T
|

O
N

Particulars

L.F Dr, Amount

‘| 800

| Opening Stock

Purchase
Sales

65400

Purchase Return

Sales Return
Capital

‘| 400000

Drawing
Loan from Ram

“| 20000

Interest on loan
Wages.

Salaries

Plant & Machinery
Debtors

Creditors

12000

Discount

Rs.) Cr. Amount

202200

12. IS THE AGREEMENT OF TRIAL BALANCE A
CONCLUSIVE PROOF OF ACCURACY?

Through the trial balance helps to show the
arithmetic accuracy of the book of accounts, it is
possible only when the account has not committed
any error.

Out of the errors made, only certain errors can be
disclosed by the disagreement of trial balance, and
even the trial balance may agree without disclosing
certain errors made.

Hence, the trial balance, is not regarded as
conclusive proof of correctness of books of
accounts maintained.

13. ERRORS

1. Error of Omission — It this a transaction happened but was
not recorded in the books of accounts

2. Error of Principle — Here accounting entries recorded in
the incorrect account.

3. Error of Commission - Its is an error that occurs when
entries are recorded in debit or credit to the correct
account but to the wrong subsidiary account or ledger.

4. Compensating error - A compensating error is an
accounting error that offsets another accounting error.
For example, the wages expense could be too high by
Rs.2,000 due to one error, while the cost of goods sold
could be too low by Rs.2,000 due to a compensating error.

14. DIFFERENCE IN TRIAL BALANCE

Very often two side of trial balance do not tally. It may result
due to following mistake -

v An item omitted to be posted into ledger from subsidiary
books.

Y” Posting of wrong amount to ledger.

Y” Posting an amount to the wrong side of ledger account.

Y” Wrong addition or balancing of ledger accounts.

Y” Wrong totaling of subsidiary books.

v An item in the subsidiary book posted twice in the ledger
account.

v Balance of some account to be written on the wrong side
of trial balance.

v An error in totaling of trial balance.

15. SUSPENSE ACCOUNT

If all the efforts made to locate the errors, fail, trial
balance may be temporarily be balanced by
transferring the amount to suspense account.
Suspense account be put at shorter side e.g. If
credit total is higher, suspense account will have
debit balance and if debit total is higher, suspense
account will have credit balance.

16. THANK YOU