Trial Balance the accounting content.pptx

this ppt contains the basic accounting concept trial balance. It is a sheet before statements.

1. TRAIL BALANCE

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 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. 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. While preparation of trial balances we must take care of the following rules/points 1. The balances of the following accounts are always found on the debit column of the trial balance -Assets -Expense Accounts -Drawings Account -Cash Balance -Bank Balance -Any losses Rules for preparation

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. It is shown below the trial balance as an additional information. It represent the unsold stock out of total opening stock and purchase. However it can appear in trial balance by making adjustment in purchase by passing following entry. Closing stock A/C Dr. To Purchase A/C

9. Methods of preparing 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. 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.

11. Difference in trial balance Very often two side of trial balance do not tally. It may result due to following mistake - An item omitted to be posted into ledger from subsidiary books. Posting of wrong amount to ledger. Posting an amount to the wrong side of ledger account. Wrong addition or balancing of ledger accounts. Wrong totaling of subsidiary books. An item in the subsidiary book posted twice in the ledger account. Balance of some account to be written on the wrong side of trial balance. An error in totaling of trial balance.

12. 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.