TRIAL BALANCE

VINOD KUMAR SHARMA

CORE FACULTY, RTI JAIPUR
PGDBA (FINANCE), CISA (USA)
LEARNING OBJECTIVES

• After this session, you will be able to:

• Know the meaning and objective of preparation of a trial
balance
• Know the format of trial balance
• Preparation of trial balance
INTRODUCTION AND DEFINITION

• Trial balance is a list of debit and credit balances of all ledger accounts. It
is prepared at the end of an accounting period
• Prepared in a statement form which shows debit and credit balances of
ledger accounts, therefore it is also called as a statement of balances
• “Trial balance is a statement, prepared with debit and credit balances of
ledger accounts to test the arithmetical accuracy of the books” J R Batliboi
INTRODUCTION AND DEFINITION

• “It is a list or abstract of the balances or of total debits and total credits of
accounts in a ledger with the purpose to determine the quality of posted
debits and credits and establish a basic summary for final statements” Eric
Cohler
• “It is a schedule or list of those debit or credit balances which are extracted
from various accounts in the ledger and balances of cash in hand, cash at
bank as shown by cash book are also included in it.” R N Carter
OBJECTIVES OF TRIAL BALANCE

• Checking of arithmetical accuracy of the ledger accounts

• Locating errors
• Facilitate preparation of final accounts
ADVANTAGES OF TRIAL BALANCE

• It helps to ascertain arithmetical accuracy of the book-keeping work done

during the period
• It supplies in one place ready reference of all balances in ledger accounts
• If any error is found out on preparation of a trial balance, the same can be
rectified before preparing final accounts
• It is the basis on which final accounts are prepared
SECTIONS IN A TRIAL BALANCE

• In accounting, a trial balance is a listing of all the general ledger accounts

in a company's accounting system and their respective balances. These
accounts are typically classified into two main sections: the balance sheet
section and the nominal section (also known as the income statement
section or the profit and loss section).
1. BALANCE SHEET SECTION:

The balance sheet section of a trial balance includes accounts that reflect the
financial position of a company at a specific point in time, usually at the end
of an accounting period.
• - Accounts in this section represent assets, liabilities, and owner's equity.
 EXAMPLES OF ACCOUNTS IN THE BALANCE
SHEET SECTION INCLUDE:
BLANCE SHEET ACCOUNT Debit Credit
SECTION
Assets: Cash, accounts receivable, √
inventory, property, plant, and
equipment.
Liabilities: Accounts payable, loans √
payable, accrued expenses, and
deferred revenue.
Owner's Equity: Common stock, √
retained earnings, and other equity
accounts.
2. NOMINAL SECTION:

The nominal section of a trial balance includes accounts that reflect the
company's revenues, expenses, gains, and losses over a specific period,
typically the entire accounting period.
• Accounts in this section are temporary accounts that are closed at the end
of each accounting period to the retained earnings or owner's equity account.
EXAMPLES OF ACCOUNTS IN THE NOMINAL
SECTION INCLUDE:
NOMINAL ACCOUNT SECTION DEBIT CREDIT
Revenues: Sales revenue, interest revenue, rental revenue. √

Expenses: Cost of goods sold, salaries and wages expense, rent √

expense, utilities expense.
Gains: Gain on sale of assets, gain on investments. √

Losses: Loss on sale of assets, loss on investments. √

 POINTS TO BE NOTED

• Date at which trial balance is prepared should be noted at the top

• Name of Account column contains the list of all ledger accounts
• Ledger folio of the respective account is entered in the next column
• In the debit column, debit balance of the respective account is entered
• Credit balance of the respective account is written in the credit column
• The last two columns are totalled at the end
• A debit balance is either an asset or loss or expense
• A credit balance is either a liability or income or gain
LIMITATIONS OF TRIAL BALANCE

• Though a trial balance helps to ensure arithmetical accuracy of

books of accounts, it is possible only when there is no
compensating error
• As all the errors made are not disclosed by the trial balance, it
would not be regarded as a conclusive proof of correctness of
the books of accounts maintained
PREPARE TRIAL BALANCE AS ON 31.12.2016 FROM
THE FOLLOWING BALANCES OF BALAN
Capital 340000 Purchases 94000
Creditors 13000 Sales Returns 3400
Advertisement 4000 Purchases Returns 2400
Salaries 38200 Carriage Inwards 1400
Water Bills receivable 5800 Interest on Loan 5000
Bank Balance (Cr.) 7000 Opening Stock 29900
Debtors 16000 Machinery 50000
Provision for Bad debts 144000 Wages 5000
Insurance 2200 Rent paid 1600
Land 250000 Bad Debts recovered 1700
Commission Received 800 Electricity Charges 2400
Closing Stock 32000
Capital 340000 Purchases 94000
Creditors 13000 Sales Returns 3 400
Purchases Returns 2400 Salaries 38 200
Bad debts recovered 1700 Carriage Inwards 1 400
Bank Balance (Cr.) 7000 Interest on Loan 5 000
Commission Received 800 Stock 29 900
Provision for Bad Debts 144000 Machinery 50 000
Total 508900 Wages 5 000
Rent 1 600
Bills receivable 5 800
Electricity Charges 2 400
Insurance 2 200
Land 250 000
Advertisement 4 000
Debtors 16 000
Total 508 900
Balance Sheet Account Section Debit Credit
Capital 340 000

Land 250 000

Machinery 50 000
Provision for Bad Debts 144 000
Stock 29 900
Creditors 13 000
Bank Balance (Cr.) 7 000
Nominal Account Section Debit Credit
Purchases Returns 2 400
Bad debts recovered 1 700
Commission Received 800
Purchases 94 000
Sales Returns 3 400
Carriage Inwards 1 400
Wages 5 000
Rent Paid 1 600
Water Bills receivable 5 800
Electricity Charges 2 400
Insurance 2 200
Advertisement 4 000
Debtors 16 000
Salaries 38 200
Interest on Loan 5 000
Total 508 900 508 900
ERRORS WHICH ARE DISCLOSED BY TRIAL
BALANCE
• Partial omission of posting an amount in ledger
• Wrong totalling of subsidiary books
• Omission of balance of an account
• Errors in extraction of the trial balance
• Debit or credit entries are not entered at all
• Debit or credit entries are entered twice
ERRORS WHICH ARE DISCLOSED BY TRIAL
BALANCE

• Debits are entered as credits by mistake and vice-versa

• Errors in calculating the balance of an account
• Balance of an account entered wrongly in trial balance
• Difference in amount between the entries
ERRORS WHICH ARE NOT DISCLOSED BY TRIAL
BALANCE
• Errors or omission
• Compensating errors
• Errors of Principle
• Entering both aspects of transactions twice in the books of account
• Errors in entering a transaction on the correct side of a wrong
account
ERRORS WHICH ARE NOT DISCLOSED BY TRIAL
BALANCE

• Entering wrong amount in the books of original entry

HOW IS AN ERROR IN TRIAL BALANCE
LOCATED
• Checking of totals of trial balance items
• Error of transposition can be detected by dividing the difference
noticed by 9. If no remainder remains, it may be an error of
transposition
• Error of slider can be also be detected by dividing the difference
noticed by 9. If no remainder remains, it may be an error of
slider.
HOW IS AN ERROR IN TRIAL BALANCE
LOCATED
• Dividing the difference of trial balance by 2 and checking the two
columns of trial balance for an identical amount. If an amount has
been entered in the wrong side, the difference can be detected
• Checking casting of subsidiary books of accounts, if the difference is
Re.1, Rs.10, Rs.100 and so on.
• If the difference is too big, the balances of previous year should be
compared with those of current year.
HOW IS AN ERROR IN TRIAL BALANCE
LOCATED

• Difference of a particular amount can be detected by finding out

if the same balance pertains to a ledger account
• If the difference can’t be located, the difference is treated as
suspense account
• Suspense account is later on adjusted till it nullifies on finding
out the errors
THANK YOU