The trial balance and

the Balance Sheet

Harvesh (Shakeel) Seegolam

 Trial Balance : What is it?

• At the end of an accounting period a balance is

struck on each ledger account.

• The way to proceed:

– Total all debits and all credits

– Debits exceed credits = debit balance
– Credits exceed debits = credit balance
 Balancing the ledger account : an e.g.

Debtors Account
Dr Cr

$ $
1.1.x9 Sales 10,000 5.1.x9 Cash 8,000

30.6.x9 Balalnce c/d 2,000

10,000 10,000

30.6.x9 Balance b/d 2,000

 Trial Balance : What is it?
• Like this all ledger accounts are balanced
and then all the balances are collected in
a trial balance.

• If the double entry is correct, then:

total debits = total credits
 Trial Balance :an example
XYZ Ltd
Trial Balance as at 30 June x9

Dr Cr

$ $

Debtors 2,000

Sales 35,000

Purchases 13,000

Creditors 1,500

Cash 10,000

Capital 10,000

Loan 10,000

Rent 4,000
 Balance Sheet : Business Entity Principle

• A business is separate from the owner of the

business. The accounting records of a business
are always kept separate from the personal
records of the owner.

• E.g: purchase of a camera to be put to sale to

clients (business transaction)
• E.g: purchase of a camera for personal use by
owner of firm (not a bt)
 Balance Sheet : Main elements
• The balance sheet is made of 3 main components, namely:
Assets, Liabilities and Equity

• Establishing the relation between the 3 components: The

Accounting Equation:
Capital + Liabilities = Assets
XYZ Ltd
Balance Sheet as at 30 June x9

Assets Liabilities

Equity
 The accounting equation
• E.g: On 1st Jan 2006, Tom started a
business under the name XYZ Ltd and
deposited $10,000 in a business bank
account. On 2nd Jan 2006, XYZ Ltd
borrowed $2,500 cash from the ABC
Bank.

• Write up the accounting equation for XYZ

Ltd as at 3rd Jan 2006.
 The accounting equation

• Assets = Liabilities + (Equity or Capital)

• 12,500 = 2,500 + 10,000

 The Balance Sheet

• What is it?
– A report showing the assets, liabilities and equity of a
business on any one day.

• To understand the balance sheet, we first need

to understand the classification of assets and
liabilities, as given below:
– Current Assets
– Non-Current Assets
– Current Liabilities
– Non- current Liabilities
 Classification of assets and liabilities
• Current Assets:
– Cash and other assets that will be consumed
or converted into cash within the next 12
months.
– E.g: Cash at bank, Inventory, Debtors

• Non Current Assets:

– Refer to fixed assets
– Assets, other than cash that will be used by a
business for more than 12 months
 Classification of assets and liabilities
• Current Liabilities:
– Liabilities that will be settled within the next 12
months
– Include: Creditors, Loans payable within 12
months, Bank Overdraft

• Non Current Liabilities:

– Liabilities that will NOT be settled within the
next 12 months
– E.g: a loan with a pay back period of 15 years
 Classified Balance Sheet
XYZ Ltd

Balance Sheet as at 30 June x9

Current Assets Current Liabilities

Non Current Assets Non Current Liabilities

Equity
 Balance Sheet : A worked Example
• On 2nd Jan x9, Tom opens a business and contributed
his car valued at $11,000 to his business, XYZ Ltd.
• On 5th Jan x9, Tom contributed his personal computer
valued at $2,000 and his office desk valued at $500 to
XYZ Ltd.
• On 2nd Feb x9, XYZ Ltd borrows $7,000 from ABC
Bank. The loan is repayable in 5 years’ time.
• On 14th Feb x9, XYZ Ltd bought a motorcycle for
$2,800 from AOL Motors and it was agreed that the
amount will be paid for within a year’s time.

Draw the Balance Sheet as at 15th Feb x9 for XYZ Ltd.

 XYZ Ltd
Balance Sheet as at 15th Feb x9
Current Assets Current Liabilities
Cash at bank 7,000 AOL Motors 2,800

Non Current Assets Non Current Liabilities

Motor Vehicle 11,000 Loan from ABC Bank 7,000

Office Equipment 2,000

Furniture & Fittings 500
Motor Cycle 2,800 Equity
Capital 13,500

23,300 23,300
 XYZ Ltd
Balance Sheet as at 30 June x9

$ $

Fixed Assets

Fixtures and fittings 18,000

Current Assets

Debtors 2,000

Cash at bank 10,000

12,000

Current Liabilities

Creditors 1,500

Loan 10,000