Trial Balance in accountancy

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Meaning of trial balance

A trial balance is an accounting statement

prepared at the end of an accounting year,
showing the total balances of debits and credits
of all ledger accounts.
 The purpose of trial balance is to assess the
arithmetic accuracy of posting into ledger
accounts. The format of a trial balance is given
as under-
 Trial Balance format
Trial Balance of…….. as on ……………………

Account L.F. Debit Credit

Total (Rs.) Total (Rs.)
       

       

       
The steps of preparing a trial balance are-

 Find the balance of each ledger account

 Take these balances to the debit or credit column
of the trial balance respectively.
 At the total of debit and credit columns in the
trial balance
 Remember that the total of both the columns
should be tallied with each other.
Objectives of trial balance preparation

 Some of the main objectives of trial

balance are-
 Verify the arithmetical accuracy of all
ledger accounts
 Identify errors while recording
transactions
 Facilitythe preparation of financial
statements
Preparation of trial balance

There are 3 ways to prepare a trial balance, which

are discussed as under-
1. Totals method
 In totals method of preparing a trial balance,
the total of each side of debit balances and
credit balances in the ledger accounts is done
and then are taken to the respective columns in
the trial balance.
 This method is not widely used since it does not
help check the accuracy of balances of different
ledger accounts.
Balances method

 Inthis method, the balances of the ledger

accounts article to the trial balance to their
respective debit and credit columns and
then the same are totaled and tallied for
correctness.

 Thisis the most widely used method of

preparing a trial balance.
Totals-cum-balances method

 This method combines the above two

methods. In this model, the trial balance
is prepared using 4 columns of amount.
 The totals of debits and credits of various
accounts are written in two columns,
while the other two are used for writing
the individual balances of debit and
credit.
 This method is not used since it is time
consuming and do not serve much
purpose.
Importance of agreement of trial balance

 As stated earlier, a trial balance should tally. In

other words, a trial balance in which both the
debit and credit side tally with each other, it
signifies that the business transactions are made
correctly.
 However, a tallied trial balance does not always
guarantee that it is correct.
 There can be a number of errors that either
affect both the debits and credits equally or do
not affect them at all.
Errors of trial balance
 Totaling errors of debit and credit balances in trial
balance.
 Totaling errors in subsidiary books
 Posting error in total of subsidiary books
 Error while posting entry in wrong account or column in
the trial balance
 Omitting any account balance while posting from ledger
to trial balance.
 Calculation error in totalling balances in a ledger account
 Error made in posting journal entry
 Error of name or amount while recording transaction in
subsidiary books
Basis of classification of errors

 The errors, depending on the nature, can be

identified into four categories defined as
under-
 Errors of commission
 Errors of omission
 errors of principle
 Compensating errors
Errors of commission

 The errors of commission include those errors

which are made when a transaction is wrongly
posted, wrongly totaled or balanced, wrongly
casting in subsidiary books or wrongly record
recorded in journal book. For example,
payment made to supplier is debited by lesser
amount.
Errors of omission

 The errors of omission can be made while

recording the transaction in journal account
or posting to ledger account.
 These errors can be either complete omission
or partial omission. For example, the
payment made to supplier, is left out from
recording, it leads to complete omission.
 But if the cash is credited and the suppliers
account is missed from being debited, it leads
to partial omission. It should be noted that
the errors of commission and omission affect
the trial balance.
Errors of principle

 The errors of principle occur when the

generally accepted accounting principles
are not followed properly while recording
an accounting entry. For example, in case
of a payment made to supplier, the
suppliers account should be debited and
the cash account should be credited.
 But if instead of supplier account,
purchases are debited, it leads to error of
principle.
Compensating errors

 The compensating errors are those errors which

are made in such a way that the net effect on
debit and credit account is same. For example,
while recording an entry, if one error leads to
overcasting of purchase book by certain amount,
while another error leads to shorting of debit
account by same amount (in sales return book),
both the errors compensate each other.
 The errors of principle and compensating errors
do not affect the agreement of trial balance.
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