Accounting: Definition, Format, Objectives, Steps and Methods of Trial Balance

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Trial Balance

Every business firm keeps information of their business transactions periodically. The business transactions, date wise and in the order of their occurrence, are recorded in Journal Books such Cash Book, Sales Book, Purchases Book etc. Next to Journal, Ledgers are prepared for every individual account. To check the accuracy of posting in the ledger, we prepare a statement called Trial Balance.

Definition

Trial Balance is an internal financial statement which contains balances of all ledger accounts on a particular date.

  • Trial Balance is basically prepared at the end of the year. However, it can be prepared at any time to check accuracy of posting in the ledger.

  • It is not an account. It is just a statement or schedule of balances of ledger accounts.

Format of the Trial Balance

Trial Balance of XYZ ltd. As on Dec, 2009

Table 1 Supporting: Format of the Trial Balance

Tablutation of: Name of the Account, L.F., Balance (Rs.)

Name of the Account

L.F.

Balance (Rs.)

Dr.

Cr.

  • The accounts having a debit balance are entered in the debit amount column (Dr.).

  • The accounts (ledger A/c) having a credit balance are entered in the credit amount column.

  • At the end, the debit amount column and the credit amount column are summed up.

  • If the balances of both debit side and credit side equal the entries in ledgers are arithmetically correct.

  • If the balances of both sides are not matched a separate ledger a/c, Suspense A/c is created to balance both the sides. This suspense a/c disappears once it is rectified.

Objectives of Preparing Trial Balance

  • To check arithmetical accuracy – by comparing balances of both the sides i.e. debit column side and credit column side.

  • To help in preparing Financial Statements – The balance of ledger accounts are carried from Trial balance to prepare Financial Statements i.e. Trading and Profit and Loss Statement, Balance Sheet etc.

  • To locate the errors (when two sides of Trial balance are not equal).

  • To help in comparison of ledger account balances of two years. It helps to take important decisions.

  • To help in making adjustments while preparing financial statements.

Steps to Prepare Trial Balance

  • Firstly, ascertain the balance of every ledger account.

  • Write the name of the ledger account in the ledger column.

  • Note the balance in credit column if the ledger a/c is having credit balance

  • Note the balance in debit column if the ledger a/c is having debit balance.

  • Finally, add total amount for both the columns i.e. debit column and credit column in Trial balance sheet.

Methods of Preparing Trial Balance

Balance Method

In this method, the balances of each account (which may be debit balance or credit balance) is extracted from respective ledger account and write debit balance in the debit column and credit balance in the credit column of the Trial Balance sheet. This method is normally used by everyone.

Total Method

In this method, we do not calculate debit balance or credit balance for the respective ledger account. We calculate the debit total and credit total of those ledger accounts and the same will be transferred to Trial Balance. (Debit total may not be equal to credit total of the ledger account).

Balance Totals Method

Trial Balance is prepared by combining Balance method and Total method.

Example:

From the following ledger accounts of a trader Shan India Ltd. closed as on 31st January, 2006, prepare Trial Balance using Balance Method.

Ledgers

Capital A/c

Dr. Cr.

Table 2 Supporting: Balance Totals Method

Tablutation of: Date, Particulars, J.F., Amount (Rs.), Date, Particular, J.F, Amount(Rs.)

Date

Particulars

J.F.

Amount (Rs.)

Date

Particular

J.F

Amount

(Rs.)

Jan 31

Balance c/d

100000

Jan 1

Feb 1

Bank A/c

Balance b/d

100000

100000

Sales A/c

Dr. Cr.

Table 3 Supporting: Balance Totals Method

Tablutation of: Date, Particulars, J.F., Amount (Rs.), Date, Particular, J.F, Amount(Rs.)

Date

Particulars

J.F.

Amount (Rs.)

Date

Particular

J.F

Amount(Rs.)

Jan 1

Balance c/d

70000

Jan 8

Jan 15

Bank A/c

Vikram A/c

24000

46000

70000

70000

Purchases A/c

Dr. Cr.

Table 4 Supporting: Balance Totals Method

Tablutation of: Date, Particulars, J.F., Amount (Rs.), Date, Particular, J.F, Amount(Rs.)

Date

Particulars

J.F.

Amount (Rs.)

Date

Particular

J.F

Amount

(Rs.)

Jan 5

Jan 14

Pranaya A/c

Bank A/c

40000

55000

Jan 31

Jan 31

Stock A/c

Balance c/d

15000

80000

95000

95000

Vikram’s A/c

Dr. Cr.

Table 5 Supporting: Balance Totals Method

Tablutation of: Date, Particulars, J.F, , Amount (Rs.), Date, Particular, J.F, Amount (Rs.)

Date

Particulars

J.F

Amount (Rs.)

Date

Particular

J.F

Amount (Rs.)

Jan 15

Feb 1

Sales A/c

Balance b/d

46000

Jan 31

Balance c/d

46000

46000

46000

46000

Pranaya’s A/c

Dr. Cr.

Table 6 Supporting: Balance Totals Method

Tablutation of: Date, Particulars, J.F, Amount (Rs.), Date, Particular, J.F, Amount (Rs.)

Date

Particulars

J.F

Amount (Rs.)

Date

Particular

J.F

Amount (Rs.)

Jan 31

Balance c/d

40000

Jan 5

Feb 1

Purchases A/c

Balance b/d

40000

40000

40000

40000

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