ACC 106 : INTRODUCTION TO

FINANCIAL ACCOUNTING AND

REPORTING

TOPIC 4(B)
Learning Objectives
 At the end of this topic, students should be
able to:
 understand the purpose of preparing a trial
balance
 Prepare a trial balance from a set of accounts
 able to identify the types of errors when trial
balance does not balance
Trial Balance
 A listing of all account balances in the ledger
(T account) according to the debit and credit
balance.

 If the double entry principle is applied

correctly, the total debit balances should
equal to the total credit balances.

Total debit balances = Total credit balances

 Trial balance
 Ledger accounts with zero balance are excluded
from the trial balance

 Normally can be drawn up anytime, however, it

is normal practice to prepare at the end of
accounting period before preparing income
statement and balance sheet
 Example:
Date Transactions
Mar 1 The owner brought in RM10,000 cash and
deposited the money into the business bank
account.
Mar 1 Purchased goods worth RM4,000 from Nobi
Trading on credit.
Mar 2 Returned damaged goods worth RM500 to Nobi
Trading.
Mar 3 Issued cheque to Nobi Trading RM3,500.
 Purchase Capital
1-Mar AP-Nobi Trading 4,000 31-Mar Bal c/d 4,000 31-Mar Bal c/d 10,000 1-Mar Bank 10,000

4,000 4,000 10,000 10,000

1-Apr Balance b/d 4,000 1-Apr Bal b/d 10,000

Return outwards
Bank
31-Mar Bal c/d 500 2-Mar AP-Nobi Trading 500
1-Mar Capital 10,000 3-Mar AP-Nobi trading 3,500
31-Mar Bal c/d 6,500
500 500 10,000 10,000
1-Apr Balance b/d 500 1-Apr Bal b/d 6,500

AP- Nobi Trading

2-Mar return outwards 500 1-Mar purchase 4,000
3-Mar bank 3,500
4,000 4,000
Purpose of preparing a Trial Balance
 Helps in the preparation of final account as one
doesn’t have to look through the pages in the ledger to
prepare them.
 Helps to determine the mathematical accuracy of the
account balances. If there is an error in the calculation
of the balance, the debit balance will definitely not the
same with the credit balance.
 Helps to determine whether double entry system has
been applied correctly in recording the transaction. If
there is an error in applying the double entry system,
the trial balance will give a signal as the total debit
balance differs from the total credit balance.
Steps in preparing Trial Balance
 State the name of the business and title
 Accounts having debit balance are listed in the debit
column and accounts having credit balances are
listed in the credit column of a trial balance
(Accounts with zero balances are not listed)
 In the case of debtors, instead of listing each
individual named debtor, we total up all the named
debtors and only the total of the debtors is shown
 The amount in each column is then totaled
Format of Trial Balance
 A trial balance may be prepared in two ways:
 T-format
 A page in a book is divided into two; one is to list down
the name and amount of the account with debit
balances and the other is to list accounts with credit
balances.
 Statement format
 The account names are listed in a column and the
amount in those accounts are listed in a debit and a
credit column.
 T - Format of Trial Balance
DIA Sdn Bhd
Trial balance as at 31 December 2008
Debit Credit
Account RM Account RM
Cash 500 Bank overdraft 700
Debtors 1,200 Creditors 1,100
Purchases 4,200 5-year Loan 10,000
Drawings 80 Sales 9,000
Return inwards 60 Return outwards 90
Expenses 3,000 Capital 20,000
Motor Vehicle 10,000
Building 21,850

40,890 40,890
Statement Format of Trial Balance
DIA Sdn Bhd
Trial balance as at 31 December 2008
Account Debit Credit
Cash 500
Debtors 1,200
Purchases 4,200
Drawings 80
Asset, Drawing, Expense
Return inwards 60
Expenses 3,000
Motor Vehicle 10,000
Building 21,850
Bank overdraft 700
Creditors 1,100
5-year Loan LIABILITY, CAPITAL, REVENUE 10,000
Sales 9,000
Return outwards 90
Capital 20,000
40,890 40,890
Errors in trial balance
 Two types:
 Errors affecting trial balance agreement
 Errors not effecting trial balance agreement
 ERRORS IN TRIAL BALANCE

Errors affecting Trial Balance Errors not affecting Trial Balance

agreement:- agreement:-
i.e. Trial Balance not balanced i.e Trial Balance balanced
Total Debit ≠ Total Credit Total Debit = Total Credit

1. Error of omission
1. Single entry.
2. Error of commission
2. Errors of transposition.
3. Error of principle
3. Errors in addition.
4. Complete reversal of entries
4. Posting to incorrect side of
5. Compensating errors
accounts.
6. Error of original entry
5. Errors in trial balance itself.
Errors AFFECTING Trial Balance Agreement
 (1) Single entry/Omission of part of an entry
◦ Only one aspect of transaction is recorded.

 (2) Errors of transposition

◦ Figures are written in the wrong order that is debiting as
RM340 and crediting the accounts with different amount
as RM430.

 (3) Errors in addition in ledger accounts

◦ Addition errors when adding the debit and credit sides of
an account. It will cause the balancing figures to be
incorrect.
 Errors AFFECTING Trial Balance Agreement
 (4) Posting to the incorrect sides of an account
 The debit and credit side of transaction is posted to
the wrong side of an account

 (5) Errors in trial balance itself

 Error when transferring the account balances from the
ledger into the trial balance
 Errors NOT effecting Trial Balance Agreement
 (1) Error of omission
 A transaction is totally omitted from the books

 (2) Error of commission

A correct amount is entered but in the wrong person’s
account
▪ Ex: there are two accounts receivable, Adham account
and Idham account.
▪ The bookkeeper wrongly debited RM700 to Adham
account when in fact it should be debited to Idham
account for the inventory sold to him on credit.
 Errors NOT effecting Trial Balance Agreement
 3) Error of principle
 An item is entered in the wrong class of account
 Ex: payment by cheque for vehicle repairs correctly
credited to bank account but debited to vehicle account
instead

 (4) Error of original entry (or error occurred at source document)

The original figure is incorrect, yet double entry observes
using the incorrect figures
 (5) Complete reversal of entries
 Correct accounts are used but each item is shown on the
wrong side of the account