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Trial balance – How to prepare & Format

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Trial balance is a list of ledger accounts balances, showing debit balances and credit balances, separately on a certain date. Trial
balance is only a statement not an account. As we learned, every transaction has equal debit and credit aspects so that the trial balance possesses equal debit and credit balances.

Trial balance preparation

You need to arrange all ledger balance accordance with its balances. All debit balance ledger should be on debit column and credit balance should be on credit column and finally total both the sides. The total of both sides must equal. If it doesn’t match; something went wrong in ledger posting or ledger balancing.

A trial balance tests the arithmetical accuracy of ledger posting before using it to the balance sheet, by ensuring both sides are equal. If both sides are equal we say trial balance is tallied or agreed. However tallying trial balance cannot ensure the 100% accuracy. There may be errors like compensating error which can be find out only after scrutinizing ledger posting .We will discuss trial balance and errors on next chapter.

Examples of Trail Balance

Lets take the examples of our previous chapter,Here is the example from Our previous lesson Journal entry example.

01.01.2009Cash .....Dr200000
To Capital200000
(being capital brought by Mr john)
02.01.2009Land a/c .....Dr105000
To Cash105000
(being land purchased forcash)
03.01.2009Purchase a/c .....Dr200000
To S.K Creation200000
(being credit purchase from S.K creation )
04.01.2009Stationery a/c .....Dr1000
To Cash1000
(Stationery purchased for cash )
05.01.2009Indian Cotton a/c .....Dr45000
To Sales a/c45000
(Credit sales to indian cottons )
06.01.2009Rent a/c .....Dr1500
To cash a/c1500
(being rent paid )
07.01.2009Capital/drawings a/c .....Dr5000
To cash a/c5000
(being cash withdrawn for personel use )
08.01.2009staff welfare a/c .....Dr100
To cash a/c100
(being tea expense incurred for staff )
09.01.2009Computer a/c .....Dr30000
To Computer solution a/c30000
(being computer purchased from computer solution )
10.01.2009Commision a/c .....Dr500
To cash a/c500
(being commission paid )
11.01.2009SBI(Bank) a/c .....Dr15000
To cash a/c15000
(cash deposited in to bank )
12.01.2009Cash a/c .....Dr25000
To Sales a/c25000
(beingcash sales incurred )
13.01.2009SBI(Bank) a/c .....Dr15000
To Indian cotton a/c15000
(ch# 895222 receoved from indian cotton deposited in to bank )
14.01.2009Sales Return a/c .....Dr2500
To Indian cotton a/c2500
(being goods sold returned by indian cotton )
15.01.2009Cash a/c .....Dr10000
To SBI ( Bank) a/c10000
(being cash withdrawn from bank )
16.01.2009S.k creation a/c .....Dr5000
To Purchase Return a/c5000
(Being goods returned to s.k creation )

And open the subsequent ledger posting of the above  example in a new tab.We brought the ledger balances into the trail balances.

Format of trail balance

Let’s explain items in the table

Ledger: Organisations are using different Ledger books, for different types of transactions, like a ledger book for sales, ledger book for debtors, purchases etc. If you are using different ledger the name should be entered here

Account: Each and every account balance in a ledger book

Folio No: The Page number of Ledger book in which the account balance exists.

Uses of trial balance

  • The trail balance provides proof that the ledger is in balance.
  • The Agreement of the debit and credit totals of the trail balance gives assurance that

1.Equal debits and credits have been recorded for all transactions

2.The debit or credit balance of each account has been correctly computed

3.The addition of the account balances of each account has been correctly computed.

Errors in Trail balance

Suppose that the debit and credit totals of the trail balance do not match indicates that errors in Trail balance. some of such errors are

  • The entering of debit as credit or credit as debit
  • Totalling mistake in balancing
  • Account balance copied wrongly into trail balance
  • Entering debit balance into credit side of trail balance and vice versa.

Limitations of trail balance

Trail balance does not prove that all transactions have been posted and analysed into proper ledger accounts. For example cash payment transaction wrongly debiting cash and crediting expense account, still trail balance tally. or if we are omitting some transactions for recording into ledger, still trail balance tally. Trail balance only proves only the equality of debit & credit.

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