Function of the Trial Balance

It necessary, from time to time, to check the General Ledger for accuracy. The process of drawing up a
trial balance checks the arithmetic accuracy of the general ledger and whether all postings to the
ledger observed the rules of double-entry bookkeeping.

This is usually done on a monthly basis but the time interval between this checking procedure is
arbitrary. It depends on the policies and procedures of the business organisation.

Definition: The trial balance is a list of ledger account balances prepared on a particular date.

Preparation of the Trial Balance

The procedure for preparing a trial balance is:

1. Write the heading of the trial balance

2. Calculate the balance of each ledger account>
3. List each account in the ledger and put the balance in the debit or credit column as
appropriate
4. Total the debit and credit columns. The column totals must be equal.

Step 1 - Write the heading of the trial balance

Example heading:

Lots of Fun Inc.

Trial Balance as at 31 January 2011
Account Debit Credit

Step 2 - Calculate the balance of each ledger account

The end of month balance for each account in the ledger must be calculated. In the example below,
the Cash at Bank A/c has an opening debit balance of Php.5342.50. During the month funds of
Php.2514.00 were banked and payments of Php.3265.50 were made leaving a month end debitbalance
of Php.4591.00. The "Balance" column in the ledger exists to help keep a running balance of the
account as each posting is made to the account. Example, Cash at Bank A/c:

Cash at Bank A/c

Date Particulars Debit Credit Balance Type
01/01/11 Balance b/d 5342.50 5342.50 Dr
31/01/11 Cash Payments Journal 3265.50 2077.00 Dr
31/01/11 Cash Receipts Journal 2514.00 4591.00 Dr
Some accounts in the ledger may have many postings some may have no postings during the month.

Step 3 - List each account in the ledger and put the balance in the debit or credit
column as appropriate

On the document that you have headed "Trial Balance" in Step 1 above, make a list of every account in
the ledger. Then write the month end balance of the account in the appropriate column. Be careful not
to place the account balance in the wrong column. This is often a cause of error and the reason why
the trial balance does not balance. Also ensure that you do miss any accounts in the ledger.

As this process unfolds your document will resemble the example below although there may be many
more accounts:

Lots of Fun Incorporated

Trial Balance as at 31 January 2011

Account Debit Credit

Php. Php.
Accumulated Depreciation on Office Equipment 975.00
Cash at Bank 4591.00
Clothing Stock 1945.00
Creditors 1138.60
Debtors 243.00
Accumulated Members Funds 7238.85
Bank Loan 2840.55
Office Equipment at Cost 5410.00
Membership Fees 3476.00
Salaries 3258.00
Telephone 439.00
Bank Charges 13.50
Competition Fees 288.50
Totals 15957.50 15957.50

Step 4 - Total the debit and credit columns. The column totals must be equal.

In the above example both the debit and credit columns have been totalled and agree at
Php.15,957.50.

Trial Balance Errors

Although a trial balance may "balance" it does not follow that there are no errors. There may have
been incorrect amounts entered on both sides of the ledger. There may also have been entries to
wrong Accounts but on the right side. Furthermore it is possible that transactions have been entirely
omitted.

Therefore some degree of comfort is afforded when both sides balance but there is no guarantee of
correctness.