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TRIAL BALANCE

Every transaction is recorded under double entry system. The fundamental Principle of Double entry system is that for every debit there must be a corresponding credit. All the ledger accounts are balanced. After arriving at the figures, total of all debit balances must be equaled to the total of credit balances if the accounts are arithmetically accurate.

At the end of the financial year, or at any time the balances of all the ledger accounts are extracted and written up, a statement is prepared which is known as Trial Balance.

Simply, Trial Balance is a settlement which is prepared in order to testify the arithmetical accuracy of entire financial transaction. Agreement of the Trial Balance exposes both the aspects of each transaction which have been recorded and that the books are arithmetically accurate. Suppose Trial Balance does not agree, it means there are errors which must be detected and rectified before preparing the final account. Trial Balance creates a link between ledger accounts and final accounts.

 

 Aim of Trial Balance

1. To avoid unnecessary verification of all the pages of ledger.

2. It is a suitable and easy method of verifying the arithmetical accuracy of the entire transaction.

3. Trial Balance agrees only when the Debit side total is equal to credit side total. Otherwise, there are some errors.

4. It helps in the preparation of final Account. i.e., Trading Accounts, Profit and Loss Account and Balance sheet.

 

Methods of preparing Trial Balance

There are two methods available for preparing Trial Balance.

1. Total Method                           2. Balances Method

Under the total method, without balancing the ledgers, Debit and credit totals of each account are shown in the two columns i.e., debit side total in the debit column of Trial balance and credit side total is put in the credit column of Trial Balance.

Under the Balances method, the balances are extracted from various ledgers. Simply Debit side of the ledger balance is transferred to Debit side of trial balance, credit side of the ledger balance is transferred to credit side of Trial Balance. The nil balance accounts are not taken into account in this method. So, this method is more convenient to adopt and to be followed at regular practice.

 

Rules

Debit side = Either Asset Account balances or Expenses Account balances

Credit side = Either Liability Account balances or Income Account balances

 

Format of Trial Balance

Trial Balance of . . . . . . . . . . . . . . . . . . . . . . . . as on ………………….. .

Problem 4. Prepare Trial Balance as on 31.03.2002 from the following balances of Mr. Ravi.

Capital ……………………………………………………. …. …………………………………………  1,00,000

Sales … ……. …………………………………. …………………………. ……………. ….. ……….. 1,50,000

Plant Machinery ……………………………………………………………………………………… 60,000

Purchases ………………………. …………………………. …………………………………………….. 50,000

Sales Returns …………………………………………….. …. …………………………………………… 5,000

Wages ……………………………………. ………. ………………………. ………………… ……… … 10,000

Sundry creditors …………………………………………………………………………………………. 60,000

Bad debts …………………………….. ……………………………………………………………………. 7,000

Bad debts provision ……………………………….. …………………………. …….. .. ……………. 3,000

Land Buildings .. ……………………………………. ………………………………………….. 1,00,000

Debenture ………………….. ……………………………………………………………. ……………. 45,000

Drawings …………………………………………………………………………………………………. 10,000

Commission Received …………………………………………………………………………….. …. 7,500

Auditor’s fees …………………………………………………………………………………………….. 6,500

Purchase Return ………………………………………………………………………………………. 10,000

Bills Payable …………………………………………… ………………………………………………. 9,000

Carriage inwards ………………………………………………………………………………………. 2,000

Goodwill ………………………………….. ………………………………………………………… .. 10,000

Reserve Fund …………………………………………………………………………………………. 25,000

Wages & Salary ……………………………………… ……………. ……. …………… ………. … 5,500

Carriage outwards …………………………………………………………………………………… 1,500

Stock on 01.04.2001 ………………………………………….. ……………… …………………. 25,000

Debtors ………………………………………………………………………… …………………….. 49,000

Interest Received …………………………………………………………………………………….. 4,000

Travelling Expenses …………………………………………………………… ………………….. 5,000

Bank overdraft ………………………………… … ………………………………………………… 3,000

Trade expenses ………….. ………………. … ……………. …………….. ……………………. 3, 400

l-Jotor vehicle ……………………………………………………………………………. ………… 8,000

Rent received ………………………………………………………………………………… …. … 2,000

Lease hold Property ………………… …………………………………………………………. 60,600

 

Solution:

Trial Balance of Mr. Ravi as on 31st March 2002

Problem 5. Prepare Trial Balance as on 31.03.2002 from the balances of Mr. Raju.

 

Cash in hand ……………………………………………………………………………………………….. 1, 70,000

Building ….. ……………. …………………………………………………………………………………… 1,60,000

Stock on 01.04.2001 …………………………………………………………………………………………. 70,000

Purchases …………………………………………………………………………………………………….. 3,20,000

Sales Return ………………………………………… ……………………………………………. …………… 5,000

Commission Received ………………………………………………………………………………………… 7,000

I nterest on Drawings ………………………………………………………………………………………… 5,000

Director’s fees ……………………………………………… …………………………………………………. 2,000

Carriage inwards ………………………. ……………………………………………………………………. 4,000

Carriage outwards ……………………………………. .. .. ……………………………………………….. 3,000

Wages ……… …………………………………………………………………………………………………….. 2,000

Salaries wages ………………………………………………………………………………………………….. 3,000

Investments …………………………………………………………………………………………………….. 75,000

Sales ……….. …………………………………. .. ……….. ……………………………………………….. 7,30,000

Preliminary expenses …………………… .. ………………………………………………………………… 5,000

Sundry Creditors ……………………………………………………………………………………………… 60,000

Bills Payable …………………………………………………………………………………………………… 30,000

Insurance ………………………………………………………………. ……………………………………….. 2,500

Income from Investment …………………………………………………………………………………….. 3,500

Printing Advertisement ………………………………………………………………………………… 15,000

Bank Loan .. ………………………………….. …………………………………….. ……………… … …. 40,000

Freight on Purchase ……………………………………………………………….. ………………………. 5,000

Furniture Fittings …………………………… …………………………………………………………. 18,000

Drawings Accounts …………………………………………………………………………………………… 5,500

Deposits …………………………………………………………………………………………………………. 86,000

Sundry Debtors .. ………………………………………… ……. …………… …… ……… … … …. …. 90,000

Bills receivables ……………………………………………………………………………………………… 35,000

Office Expenses ………………………………………………………………………………………………… 3,000

Motor Van ………………………………………….. ………………………………………………………… 63,000

Loan on Mortgage ……………………………………………………………………………………….. 1,02,000

Interest on loan ………………………………………………………………………………………………… 4,500

General Expenses ……………………………………………………………………………………………… 6,500

Dividend Received ……………………………………………………………………………………………. 2,500

Interest (Cr) ………….. ……………………………………………………………………………………….. 1,000

 

Solution:         Trial Balance of Mr. Raju as on 31.03.2002

NOTE : Before the preparation of the Final Account, we have to know the following concepts and their specifications. Because these four concepts are the fundamentals to all the proceedings of Accounting, either for Trial Balance or for Final Account.