HANDOUT 5.

0 TRIAL BALANCE
By: REMAR ALLEN M. BAUTISTA, CPA

STEP 4 TRIAL BALANCE

The trial balance is a list of all accounts with their respective debit and credit balances. It is prepared to verify the equality of debits
and credits in the ledger at the end of each accounting period or at any time the posting are updated.

The procedures in the preparation of a trial balance follow:

1. List the account titles in numerical order.
2. Obtain the account balances of each account from the ledger and enter the debit balances in the debit column and the credit
balances in the credit column.
3. Add the debit and credit columns.
4. Compare totals.

The trial balance is a control device that helps minimize accounting errors. When the totals are equal, the trial balance is in balance.
The equality provides an interim proof on the accuracy of the records but it does nit signify absence of errors. For example, the
bookkeeper failed to record payment of rent, the trial balance columns are equal but in reality, the accounts are incorrect since rent
expense is understated and cash is overstated.

LOCATING ERRORS

An inequality in the totals of the debits and credits would automatically signal the presence of an error. These errors include:
1. Error in posting transaction to the ledger
a. An erroneous amount was posted to the account
b. A debit entry was posted as a credit or vice versa
c. A debit or credit posting was omitted
2. Error in determining the account balance
a. A balance was incorrectly computed
b. A balance was entered in the wrong balance column
3. Error in preparing the trial balance
a. One of the columns of the trial balance was incorrectly added
b. The amount of an account balance was incorrectly recorded on the trial balance
c. A debit balance was recorded on the trial balance as a credit or vice versa, or a balance was omitted entirely

What is the most efficient approach in locating an error? The following procedures when done in sequence may save considerable
time and effort in locating errors:

1. Prove the addition of the trial balance columns by adding these columns in the opposite direction.
2. If the error does not lie in addition, determine the exact amount by which the trial balance is out of balance. The amount of
discrepancy is often a clue to the source of the error. IF the discrepancy is divisible by 9, this suggests either a transposition
error or a slide/transplacement error. Another common error erroneous listing of a balance (recording debit balance in the
credit column).
3. Compare the accounts and amounts in the trial balance with that in the ledger. Be certain that no account is omitted.
4. Recompute the balance of each ledger account.
5. Trace all postings from the journal to the ledger accounts.
Sample Trial Balance

The Cutlery
Trial Balance
August 31, 2018

CASH IN BANK Php 2,230

ACCOUNTS RECEIVABLE -
EQUIPMENT 16,200
FURNITURE AND FIXTURES 600
PREPAID INSURANCE 600
ACCOUNTS PAYABLE Php 875
UNEARNED REVENUES 500
SCHMIDT, CAPITAL 18,000
SCHMIDT, DRAWINGS 900
INCOME SUMMARY
SERVICE REVENUES 1,855
RENT EXPENSE 500
SALARIES EXPENSE 125
UTILITIES EXPENSE 75
INSURANCE EXPENSE
Php 21,230 Php 21,230