Preparing the Trial Balance

Learning Outcomes:

In this lesson, you will learn about:

● Interpreting entries and balances

● Using balancing brought down to construct a trial balance
● The uses and limitations of trial balancing.

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Interpreting Entries and Balances
It is a valuable skill to be able to explain the
entries made in any ledger account. This
means stating the following:
❑ The date of the transaction (year, month and date).
❑ The nature of transaction (explaining what caused the
entry)
❑ The amount of the transaction

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The Purpose of a Trial Balance
❑ The trial balance is designed to check the
accuracy of the double- entry records.
❑ Because the trial balance listed all the
accounts in the accounting system.
❑ It is also a very useful summary to refer to
when preparing financial statements such
as the income statement and statement of
financial position.

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The Purpose of a Trial Balance
❑ However, the trial balance does have
limitations. There are several types of error
which are not revealed by a trial balance.

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How Does a Trial Balance Work?
The trial balance is based on the principle
that for a every transaction there should be a
matching debit and credit entry, so that the
total of all debit entries should equal total of
all credit entries.

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The Balancing Process
To produce a trial balance the following
steps are necessary:
❑ Step 1: List all the accounts in the
accounting system.
❑ Step 2: For each account, record it
balance in either the debit column or credit
column of the trial balance, according to
the side on which the balance appears in
the account.

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The Balancing Process
To produce a trial balance the following
steps are necessary:
❑ Step 3: Total the debit and credit columns
of the trial balance – the totals should
agree.

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Preparing a Trial Balance
In this illustration, the trial balance of a
business is already partly completed. The
balances of the accounts shown on the next
slide are to be added to the trial balance for
it to be completed.

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Preparing a Trial Balance
Dr Fixtures and Fittings (Account No. 2) Cr
Date Details Folio $ Date Details Folio $
2019 2019
Jan 1 Balance b/d 17 300 Nov 3 Bank CB 800
May 12 Bank CB 3 600 Dec 31 Balance c/d 20 100
2020 20 900 20, 900
Jan 1 Balance b/d 20 100

Dr Sales (Account No. 6) Cr

Date Details Folio $ Date Details Folio $
2019 2019
Jan-Nov Total entries SB 53 600
Dec 31 Balance c/d 57 700 Dec 31 Sales book SB 4 100
57 700 57 700
Dec 31 Balance b/d 57 700
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Preparing a Trial Balance
Trial balance at 31 December 2019
Dr Cr

$ $
Account payable: QX Manufacturer PL4 4 130

Account receivable SL3 2 080

Capital GL1 27 940

Cash in hand CB7 390

Cash at bank CB7 2 740
Fixtures and fitting GL2 20 100
General expenses GL3 5 800
Purchases GL4 39 900
Sales GL5 57 700

Wages GL6 18 760

Total Balance 89 779 89 770

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Additional Notes
When closing an account:
❑ The correct heading for aa trail balance is
always ‘Trial balance at…..(i.e.at a
particular date).
❑ Closed accounts with no ending balances
are not entered into the trial balance

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Summary Points
By now you should be able to:
❑ Explain which details should be given when interpreting an
entry in a leger account
❑ Analyze the benefits of preparing a trial balance
❑ Explain how to identify which column to record the balance
of an account in when preparing a trial balance

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