Accounting in English The Trial Balance

THE TRIAL BALANCE

trial balance is a list of all accounts which actually have a balance remaining on them at a particular date the balances are arranged in two columns, one for debits and one for credits

The trial balance usually lists the items in the following order: Assets Capital Liabilities Revenues (Income) Expenses Assets, expenses have debit balances Capital, liabilities, revenues have credit balance Assets + Expenses = Capital + Liabilities + Revenues (Income)

Stephen Walton: Trial Balance as at 8 February 20X9

Debit Asset Capital Liabilities Revenues (Sales) Expenses Total XX XXX XX

Credit

XX XX XX

XXX

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Accounting in English The Trial Balance

USES AND LIMITATIONS OF THE TRIAL BALANCE

The trial balance provides proof that the ledger is in balance. If the double-entry process has been completed correctly, each debit will be matched by an equal and opposite credit entry. There will thus be equal amounts on the debit and credit sides. The agreement of the debit and credit totals of the trial balance gives assurance that: 1. Equal debits and credits have been recorded for all transactions 2. The debit o credit balance of each account has been correctly computed 3. The addition of the account balance in the trial balance has been correctly performed The debit and credit totals of the trial balance do not agree. If the trial balance fails to balance - and it often will even for experts then you know a mistake has been made in the double-entry process. You need, therefore, to find it. This situation indicates errors: 1. The posting (recording) of a debit as a credit, or vice versa 2. Arithmetic mistakes in balancing accounts 3. Clerical errors in copying account balances into the trial balance 4. Listing a debit balance in the credit column of the trial balance, or vice versa 5. Errors in addition of the trial balance This process of trial and error is the reason why a trial balance is so called. Conclusion: The preparation of trial balance does not prove that transaction have been correctly analyzed and recorded in the proper accounts. The trial balance proves only one aspect of the ledger, and that is the equality of debit and credits.

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Accounting in English The Trial Balance

Example 6-1
Prepare the profit and loss account of Kleenwell, domestic cleaners, for the year ended 31 May 20X9 from the following trial balance and additional information:

Trial Balance of Kleenwell at 31 May 20X9 Owners capital Fees for cleaning Cleaning materials Motor vans Provision for depreciation (on motor vans 1 June 20X8) Wages Advertising Insurance Motor vans expenses Bank Owners drawing Administration expenses 12 per cent bank loan, repayable 2012 Bank interest Office premises 49,700 62,500

5,580 30,000 10,800 22,000 800 600 2,400 3,000 12,000 1,900 6,000 720 50,000 129,000

129,000

At 31 May 20X9, 90 of the advertising relates to the year commencing 1 June 20X9, and 300 is owing for motor van expenses. Kleenwell depreciates its motor vans at 20 per cent per annum using the reducing balance method. It does not depreciate its premises.

EXAMPLE 6-2
Using the trial balance and notes for Kleenwell given in Example 5-2, draw up the firms balance sheet at 31 May 20X9.

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Accounting in English The Trial Balance

EXAMPLE 6-3
Key Insurance Agency was organized on September 1, 20X9. Assume that the accounts are closed and financial statements prepared each month. The company occupies rented office space but owns office equipment estimated to have a useful life of 10 years from date of acquisition, September 1. The trial balance for Key Insurance Agency at November 30 is shown below. Cash Accounts receivable Office equipment Accounts depreciation: office equipment Accounts payable Capital stock Retained earnings Dividends Commissions earned Advertising expense Salaries expense Rent expense $ 3,750 1,210 4,800 $ 80 1,640 6,000 1,490 6,220 800 3,600 770 $ 15,430 Instructions: 1. 2. 3. Prepare the adjusting journal entry to record depreciation of the office equipment for the month of November. Prepare an adjusted trial balance at Novemer 30, 20X9. Prepare an income statement and a statement of retained earnings for the month ended November 30, 20X9, and a balance sheet in report form at November 30, 20X9. $ 15,430

500

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Accounting in English The Trial Balance

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