TRIAL BALANCE

MEANING

• Trial Balance is a statement which is prepared in a Separate

Papers by taking up all the ledger account balances on a particular
date in order to verify the arithmetical accuracy of the account in
the ledger and putting the Debit in one side and Credit in another.
PRINCIPLE

Total debit entries = Total credit entries

• For each debit entry there is a credit entry.

• For each credit entry there is a debit entry.
PURPOSE/OBJECTIVE OF TRIAL BALANCE

• To have all balances of all the accounts of the ledger at one place.
• To have a check whether the transactions has been recorded by
using double entry principle.
• To have arithmetic accuracy of other books of accounts because of
the agreement of the trial balance.
LIMITATIONS OF TRIAL BALANCE

• Trial balance can be prepared only in the concerns where double

entry system of accounting is adopted.
• This system is very costly and cannot be adopted by small
concerns
• It is not a conclusive proof and there may be chances of not
entering entire account or entering it twice by mistake.
PREPARATION / METHODS OF TRIAL
BALANCE

• TOTAL METHOD: Under this method, Trial balance is prepared by

taking up the totals of both Debit and Credit of all ledger accounts.
• BALANCE METHOD: Under this method, Trial balance is prepared
by taking up the balance of each ledger account.
• COMPOUND METHOD: It is the combination of above two
methods. it is also known as Total-Cum-balance method
ERRORS, WHICH ARE DISCLOSED BY A
TRIAL BALANCE
a) Posting on the wrong side of an account and posting of a wrong amount
to a ledger account also creates disagreement of the trial balance.
b) Omission of posting of an entry from the subsidiary book.
c) Errors in casting or totaling of subsidiary books or accounts or if there is
any error in the balancing the ledger account –also came disagreement of
trial balance.
d) If any item is posted twice in a ledger account from subsidiary book or put
a ledger balance on the wrong column, the trial balance will not agree.
ERRORS, WHICH ARE DISCLOSED BY A
TRIAL BALANCE

a) Errors of Omission: when the transition is not at all recorded in

the books of account i.e., neither in the debit side nor in the
credit side of the account -Trial balance will agree.
b) Error of Commission: when there is any variation in
figure/amount e.g. Instead of P 800 either P 80 or P 8000 is
recorded in both sides of ledger account –Trial balance will agree
ERRORS, WHICH ARE DISCLOSED BY A
TRIAL BALANCE

c) Error of Principles: when wrong posting is made in the books of

account i.e. accounts are prepared not according to double entry
principle e.g. Purchased plant wrongly debited to purchase
account –Trial balance will agree.
ERRORS, WHICH ARE DISCLOSED BY A
TRIAL BALANCE

d) Error of Misposting: When wrong posting is made to a wrong

account instead of a correct one although amount is correctly
recorded eg. Sold goods to B but wrongly debited to D’s account-
Trial balance will agree. Compensating Error: When one error is
compensated by another error e.g. Discount allowed P 100 not
debited to discount allowed account where as interest received
P100 but not created to interest account-trail balance will agree
SUSPENSE ACCOUNT (DIFFERENCE IN
BOOKS ACCOUNT)

• If the agreement of trail balance is disturbed due to the existence

of some error or errors in the books of account, the difference is
transferred to the suspense account. When the error or errors are
found out and rectified the suspense account is to be closed
HINTS FOR PREPARATION OF TRAIL
BALANCE

• Debit Side = Assets + Expenses

• Credit Side =Liabilities + Income