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Trial Balance

Objectives of Preparing a Trial Balance

To check arithmetical accuracy
• Arithmetical accuracy in ledger posting means writing correct amount, in the correct account and on its correct
side while posting transactions from various original books of accounts, such as Cash Book, Purchases Book, Sales
Book, etc. It also means not only the correct balance of ledger account but also the totals of the special purpose

To help in preparing Financial Statements

• As Trial Balance contains balances of all ledger accounts, in financial statements the balances of ledger accounts
are carried from the Trial balance for proper analysis.

Helps in locating errors

• If total of two columns of the trial balance agrees it is a proof of arithmetical accuracy in the ledger posting.
However, if the totals of the two columns do not tally it indicates that there is some mistake in the ledger
accounts. This prompts the accountant to find out the errors.

Helps in comparison
• Comparison of ledger account balances of one year with the corresponding balances with the previous year helps
the management taking some important decisions. This is possible by using the Trial Balances of the two years.

Helps in making adjustments

• While making financial statements adjustments regarding closing stock, prepaid expenses, outstanding expenses
etc are to be made. Trial balance helps in identifying the items requiring adjustments in preparing the financial
statements. Trial Balance is generally prepared at the end of the year. However it can be prepared at any time
during the accounting year to check the accuracy of the posting.
Standard format of a trial blance
• Trial Balance is not an account. It is only a list or schedule of
balances of ledger accounts including cash and bank balances. It
is prepared on a particular date. The accounts having a debit
balance are entered in the debit amount column and credit
balance accounts are entered in the credit amount column. The
totals of the two sides of the accounts may also be used to
prepare trial balance. The sum of each column should be equal.
Errors disclosed by a Trial Balance

Wrong totaling or casting of the subsidiary books

Posting of the wrong amount

Posting an amount on the wrong side

Omission of an amount from Ledger accounts

Omission of an amount from Trial Balance

Errors which donot affect agreement of Trail Balance

Omission of an entry altogether from Subsidiary books

Writing the WRONG amount in the subsidiary books

Posting an amount on the correct side by in the wrong account

Compensating errors -
Types of Errors
Steps to locate errors

Total the Dr & Cr. Columns of the TB. Check the total of the group
balance like Sundry Debtors. Total all the sundry debtors and then check
wit the TB balance

Balances of all accounts including Cash & Bank have be posted.

See that no mistake in the balancing of various accounts

Find the exact difference in TB. Look for such accounts with the same
amount or twice the difference

Recheck the totals of the subsidiary books

If still not traced, all accounts to be checked.

Steps to prepare Trial Balance
At first ascertain the balance account wise of all the ledger

Write the name of the ledger account in the ledger account


Write against the name of the ledger account, the balance

amount/total amount, debit balance/total in the debit column;
and credit balance/total in the credit column.

Add the debit balance/total amount column and credit

balance/total amount column.
Correcting the errors

An error is always corrected by suitable

additional entry. If correction involves transfer
an amount from one account to another, a
journal entry should be made otherwise
concerned account may be corrected by
debiting or crediting the correcting amount.

The total of the purchases book is short by Rs. 10,000

While posting the account of Mr. Roy from the sales book, the sale of 3,600 has
been credited to him.

Goods received back from Ali, a customer for Rs 1,500 have not been entered in
the return inwards book at all.

Furniture for office purchased from Ravi has been entered in the Purchase book.

A sale of Rs 1,590 to Kohli has been debited to his account as 1,950

Rs 1,500 received from C. Das has been debited to G. Das.

Suspense Account

Some accounts put the difference in the TB to a

newly opened account – “Suspense Account”.
All the errors are parked in this account and
the net balance of this account is taken to the
TB and balanced. However, the errors which
have led to the difference still exists and need
to be found out.

A. The total of the return outwards book, 2,100 has not been posted in the

B. A purchase of Rs 4,000 from Saran has been entered in the Sales book.
However, Saran’s account has been correctly credited.

C. A sale of Rs. 4,300 to Ramakant has been credited in his account as Rs.3,400

D. A sale of Rs 2,960 to Krishnen has been entered in the sales book as Rs.

E. Old furniture sold for 5,400 has been entered in the sales account as Rs

F. Goods taken by proprietor for Rs, 1000 has not been entered in the books at
Correction in the next period
Rectifications discussed so far assumes that it was
carried out in the same year. However,
sometimes rectifications are carried out in the
net year, carrying forward the balance in the
suspense account.
For nominal accounts, the corrections should be
made through a special styled account – “Profit
and Loss Adjustment Account” and the balance of
this account at year end is taken to the Capital
Account thereby no impact to current years PnL.
Real or Personal Account balances should be
adjusted in normal way.