Accounting for Managers

Lecture 6

04/06/2021 Dr. Shubhendu Vimal 1

Trial Balance
Trial balance is a list of debit and credit balances extracted
from the ledger on a particular date. Since for every debit
entry there is a corresponding credit entry of the equivalent
amount, the total of the debit and credit balances should
agree in equal amount.

A trial balance essentially proves the arithmetical accuracy

of the entries passed in the books of account and is derived
from ledger where all accounts find a place. Trial balance is
prepared after striking the balance of various accounts in
the ledger.
TRIAL BALANCE
What is a Trial balance?
It is an internal document.
It is a listing of all the accounts with their related
balances.
It provide a check on accuracy by showing whether
total debits equal total credits.

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TRIAL BALANCE
A listing of all accounts with balances at the end of the
accounting period after all transactions have
journalized and posted.
Purpose
to determine that debits = credits
to identify accounts to be adjusted

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Objectives of Preparing Trial
Balance

It forms the very basis on which final

accounts are prepared.
 It helps in knowing the balance on any
particular account in the ledger.
 It is a test of arithmetical accuracy.
Preparing the Trial Balance
The purposes of the trial balance:
To help check on accuracy of posting by
proving whether the total debits equal the
total credits
To establish a convenient summary of
balances in all accounts for the
preparation of formal
financial statements

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 Difference b/w cash & trade discount
Cash discount Trade discount
 It is allowed when payment It is allowed on certain quantity
is made before a certain being purchased
date It is given to promote sales
 It is allowed to encourage It may vary with quantity of goods
early cash payment
 It may vary with period
within which payment is to purchased
be made Not recorded in books
 Separate ledger a/c Deducted from invoice
maintained Offered at the time of sale or
 Not deducted from invoice purchase
 Offered at the time of
getting quick payment
Points to remember
1) Unless instructed to the contrary assume that all
transactions for the purchase or sale of the goods are on credit.
When goods are purchased on credit, the accounts affected will
be
i) Purchase account ii) Party’s Account

2) The term Purchase account should be used when goods are

purchased. The term Sales account should be used when sales
are sold out.
3) Return of goods to supplier is recorded in the Return
Outward or Purchase Return
4) Return of goods by customer is recorded in the Return
Inward or Sales Return
Problem 1
Journalize the following transactions, post them to ledger and balance the accounts. Also prepare a trial
balance as on 31st April 2016.
 April 1 Ravi started business with Rs. 15,000 of which Rs. 4,000 were borrowed at 15% p.m. from Shashi
 April 2 Purchased goods on credit worth Rs. 4,000 from Anant at 2% trade discount
 April 3 Cash sales to Madan Rs. 1,200
 April 6 Credit sales to Salvi Rs. 2,000 less trade discount 2%
 April 9 Paid cash Rs. 1,950 to Anant and received discount of Rs. 10
 April 12 Received Rs. 1,950 from Salvi in full settlement of his dues
 April 14 Returned goods of the price of Rs. 100 to Anant
 April 16 Paid into bank Rs. 5,000
 April 18 Issued a cheque of Rs. 1,000 to Anant on account
 April 19 Purchased goods worth Rs. 2,000 from Anant
 April 22 Sold goods costing Rs. 1,000 at 25% profit to Ratan
 April 22 Received commission of Rs. 800 from S & Co.
 April 24 Received a cheque of Rs. 395 from Ratan and deposited on the same day in bank and he was
allowed discount of Rs. 5
 April 25 Ratan returned goods worth Rs. 50
 April 30 Paid interest on loan of Rs. 50 to Shashi
 April 30 Paid salaries of Rs. 2,000 out of which Rs. 1,200 was paid by cheque
 April 30 Paid into bank Rs. 500
 April 30 Paid office rent by cheque Rs. 300