TRIAL BALANCE

TRIAL BALANCE

Trial Balance is a statement prepared to show the debit and credit balances of the accounts in two different columns. Matching of the Debit and Credit balances in Trial Balance columns indicate arithmetic accuracy or the accounting records. It also summarizes the account name of account column.

To prepare the Trial Balance, the debit and the credit balances are written in two separate columns, which are placed right next to each other, while the account name is written in the account column.

Characteristics of Trial Balance:

·        It is a statement or a list

·        It contains all the debit and credit balances

·        The total of debit balances and credit balances must be equal.

·        It is the only base for preparation of final accounts

·        It can be prepared at any time

Advantages:

·        Preparation of final accounts will become easy

·        One can rely on the results derived out of trial balance when the total of debit is equal to the total balance of credit.

·        Some accounting flaws in respect of postings can easily be detected by preparing trial balance.

·        The work of accountant will become easy for ascertaining the profitability and financial position with the preparation of trial balance.

PREPARATION OF TRIAL BALANCE:

A: The following accounts will always appear with debit balances in Trial        

Balance:

 Asset Accounts:  Land accounts, building accounts, machinery accounts, furniture Accounts, Debtors account, stock account, Bills receivable etc.

Accounts relating to expenses and losses:  Salaries account, wages account, rent account, carriage account, discount account, bad debts account, depreciation account, and also purchases account, return inward account etc.,

B: The following accounts will always appear with credit balances in Trial Balance:

Liabilities accounts: Creditors account. Loan account, mortgage account, Bills Payable account, Bank overdraft account. All types of Reserves and Funds accounts.

Income and gain accounts: Interest realized account, rent collected account, discount received account, and sales account, return outward account etc.

The Trial Balance is prepared at any given date but not for a particular period

PROFORMA

S. No	Particulars	IL.F. No.	Debit Balance	Credit balance	total

To prepare the Trial Balance, net balance of the accounts were ascertained on a particular date and arranged in the preformat of Trial balance. If these totals of debit and credit agree, we can say the Trial Balance has the arithmetical accuracy.

Example: prepare a Trial Balance from the following Ledger balance relate to          M/s. Vandana and co. As on 31-3-2013.

particular	Amount	particular	Amount
Cash in bank	200	Debtors	34000
Capital	78, 000	Bills payable	1140
Lease Property	46000	0pening Stock	5000

Solution:

Particulars Name of the account	l.f.no.	Debit(rs)	Credit(rs)
Cash in bank		200
Capital			78000
Lesa property		46000
Furniture		10500
Sales			131020
Discount allowed		540
Carried inward		350
Return inward		1500

Errors which do not affect the trial balance

Errors which do not affect the trial balance are committed in two or more accounts. They can be rectified by passing a journal entry giving the correct debit and credit to the concerned accounts. These correcting entries can be recorded in the journal proper.

Examples of these errors are: omission to pass an entry in the books of original entry wrong amount of transaction recorded in the journal, complete omission of the posting of accounts in the ledger. Examples of these errors are

·        Complete omission at the recording stages of the transaction in the books Of original entry

·        Recording of the transaction with the wrong amount in the books of original entries

·        Complete omission of posting of a transaction

·        Errors of principle

·        Posting of correct amount on the correct side but to a wrong account.

Suspense Account

In spite of best efforts, locating errors is not an easy task and may take some time. Unless detected and located, errors cannot be corrected. To avoid delay in the preparation of financial statements, the amount of difference of the trial balance is temporarily Put in an account called "suspense Account" so as to tally the trial balance by putting the difference on the shorter side. When all errors are located and Rectified , the suspense account would close automatically. But in case some balance still remains in the suspense account, due to non location of errors, it will be shown in the balance sheet on the asset side in case of debit balance and on the liabilities side in case of credit balance.

Utility of Suspense Account

The main use of suspense account is to facilitate the preparation of financial

an errors affecting the trial balance are located, rectification entries are passed' suspense account. Statements Later through the

Model questions

1. Define'Trial Balance'and its need.

2. List out the various accounts, which appear on Debit side and credit side.

3. Prepare a Trial Balance from the following Ledger balances

	Particulars	Rs		Particulars	Rs
Provision for Dep. On Machinery                 24, 200             Drawing                             770
Machinery			12, 450	Return Inward		1 3500
Purchases 8oo			17, ooo	premises		1 45,
Sales			1, 05, 000	Cash in Hand		3500
Debtors			23, 000	Discount Allowed              2800
Creditors			1 16,1oo	carriage inward		14oo

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