WEEK11: SUMMARIZING TRANSACTIONS

SESSION 33: TRIAL BALANCE

Objective:
At the end of this session, learners should be able to:
1. Understand what a Trial balance is and its purpose.
2. Prepare a trial balance.
3. Detect errors in account balances and correct the figures of the errors in the ledger
accounts.

TRIAL BALANCE PREPARATION

The preparation of a trial balance is the 3rd step of the accounting process. This proves only one aspect
of the ledger, that is the equality of debits and credits. This report summarizes the debit and credit entries
of each account in the General Ledger.

A trial balance has the following headings:

1. Name of the business or proprietor
2. Title of the report
3. Period covered by the report.

The period covered by a trial balance depends upon the need of the bookkeepers or accountants in
preparing this summary report. It can be on a monthly, quarterly, semi-annually, or annually. This report
can be prepared in any given period regardless of whether financial statements are prepared or not.

The purpose of preparing a trial balance is to check the arithmetical or mathematical accuracy in
postings and footing of the debit and credit entries of accounts in the General ledger.

PROCEDURES IN PREPARING THE TRIAL BALANCE

Remember, all account titles that appear in the Chart of Accounts are provided with one page of the
ledger.

1st step See to it that the footing of each ledger account is properly done.
2nd step
− List down all accounts in the General Ledger with open balances following the sequence of filing
the accounts in the ledger.
− Simultaneously write down the accounts' amount balance in the debit and credit column of the
trial balance depending on what account balance they may have.
− No indentions are to be made in listing the account titles and no peso sign for the amount in the
actual practice.
3rd step
After listing the last account title, draw a single line across the two amount columns and foot the debit
and credit money columns. The single line drawn is called a single rule.
4th step
As the debit and credit totals are equal, draw a double line under the total of both columns. The double
line drawn is called Double Rule which signifies that the trial balance is already in balance.

Shown on the next page is Illustration 33-1: Example of a Trial Balance of the ANIME WORLD GALLERY
for the month ended 31 May 2019. The source of the trial balance is the general ledger with open
balances that were found in the previous lesson’s illustration. The ones that were placed in shaded
boxes.

Limitations of a Trial Balance

A trial balance does not guarantee freedom from recording errors, however. Numerous errors may exist
even though the totals of the trial balance columns agree. For example, the trial balance may balance
even when:
 1. A transaction is not journalized.
2. A correct journal entry is not posted.
3. A journal entry is posted twice.
4. Incorrect accounts are used in journalizing or posting.
5. Offsetting errors are made in recording the amount of a transaction.

As long as equal debits and credits are posted, even to the wrong account or in the wrong amount, the
total debits will equal the total credits. The trial balance does not prove that the company has recorded
all transactions or that the ledger is correct.

Possible Errors in the Trial Balance

1. Transposition - occurs when an order of two numbers is reversed
Example: 48 was erroneously written as 84
234 was erroneously written as 432
2. Trans placement or Slide - occurs when a decimal point has been moved or misplaced
Example: 100 was erroneously written as 10
67.89 was erroneously written as 678.9

Note: In both cases, the discrepancy between the two columns of the trial balance is divisible by 9

Locating Errors
Errors in a trial balance generally result from mathematical mistakes, incorrect postings, or simply
transcribing data incorrectly. What do you do if you are faced with a trial balance that does not balance?
First, determine the amount of the difference between the two columns of the trial balance. After this
amount is known, the following steps are often helpful:
1. If the error is P1, P10, P100, or P1,000, re-foot the trial balance columns and recompute the
account balances.
2. If the error is divisible by 2, scan the trial balance to see whether a balance equal to half the error
has been entered in the wrong column.
3. If the error is divisible by 9, retrace the account balances on the trial balance to see whether they
are incorrectly copied from the ledger. For example, if a balance was P12 and it was listed as P21, a
P9 error has been made. Reversing the order of numbers is called a transposition error.
4. If the error is NOT divisible by 2 or 9, scan the ledger to see whether an account balance in the
amount of the error has been omitted from the trial balance, and scan the journal to see whether a
posting of that amount has been omitted.

Illustration 33-1: Example of a Trial Balance

Anime World Gallery

Trial Balance
May 31, 2019
Debit Credit
Cash ₱ 373,660
Accounts Receivable 70,000
Art Supplies 7,200
Prepaid Rent 18,000
Prepaid Insurance 10,800
Office Equipment 180,000
Furniture and Fixture 40,000
Accounts Payable ₱ 32,200
Notes Payable 100,000
Utilities Payable 4,500
Unearned Painting Revenue 80,000
Ong, Capital 300,000
Ong, Drawing 18,000
Painting Revenue 210,000
Salaries Expense 4,000
Utilities Expense 5,040
Total ₱ 726,700 ₱ 726,700