Trial Balance

By
Dr. Pranabananda Rath
Consultant & Visiting Professor
Dr. P N Rath
 Process of Accounting

Purchase book

Sales book
Trading A/C
Purchase
Journal

return book Manufacturing

Sales return A/C
Ledger book
T.B F.A/c
P/L .A/c
B/R book
B/S
B/P book

Journal proper

Dr. P N Rath
Dr. P N Rath
Dr. P N Rath
 Meaning
 It is a statement showing credit and debit balance
from the ledger.

 A Trial Balance is a list of nominal ledger account

and their balances at a given date. It is usually
prepared on the last day of the accounting period.

 Trial balance is an important statement in the

accounting process as it shows the final position
of all accounts and helps in preparing the final
statements.

Dr. P N Rath
 Objectives of T.B

 To check the arithmetical accuracy of ledger balances &

a/c.

 To understand the impact of debit & credit balance.

 To have a proof that the double entry of each transaction

has been recorded as per the rules.

 To provide various materials & information for

preparation of final a/c.

 To help in locating errors.

Dr. P N Rath
 Preparation of Trial Balance

 Ascertain and prepare the balance of each ledger balance.

 List the ledger account balances in two columns on the trial

balance:
 Left column = Debits
 Right column = Credits
 List all the Debit balances on the debit side and add them
up.
 List all the Credit balances on the credit side and add them
up
 Trial balance proves DR = CR

Dr. P N Rath
 The Balancing of Accounts & The Trial Balance

The rules to prepare the Trial Balance:

Total Debit Entries = Total Credit Entries

Debit Credit
Assets Income/ Revenue
Expenses Liabilities
Drawings Capital

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If the double entry system has been
applied correctly……
 For each debit entry there is a credit
entry.
 For each credit entry there is a debit
entry.

Dr. P N Rath
 Debit & Credit Balance

 An account has a debit balance when its debit total exceeds

its credit total.
 An account has a credit balance when its credit total
exceeds its debit total.
 Asset, expenses and drawings accounts have debit balances.
 Liability, capital and revenue accounts have credit
balances.
 A Trial Balance is a list of debit and credit balances
extracted from the accounts in the ledger at a particular
date.
 The total debit balances will equal the total credit balances
in the Trial Balance if the double-entry principles of
recording have been strictly adhered to
Dr. P N Rath
 Trial Balance
Sl. Particulars L.F Debit Balance. Credit
No Rs Balance.
Rs
1 Gross Profit *
2 Capital *
3 Land & Building *
4 Plant & Machinery *
5 Carriage out ward *
6 Carriage inward *
7 Purchase *
8 Sales *
9 Purchase return *
10 Sales return *
11 Return inward *
12 Return outward *
13 Wages *
14 Loan from X *
15 Interest on investment *
16 Commission, interest & dividend *
17 Bank overdraft *
18 Debtors *
19 Creditors *
20 Establishment expenses *
21 B/R *
22 B/P *
23 Discount received *
24 Bad debt *
25 Cash in hand *

Dr. P N Rath
Case:1

2010

Dr. P N Rath
 Answar
Trial Balance of Mr. Sankar as on 31st March 2010

Dr. P N Rath
 Case:2 Prepare a Trial Balance of Mr. Ram as on 31st December 2010.
Particulars Amounts. Rs Particulars Amounts. Rs
Capital 9,20,000 Cash at Bank 1,45,340
Creditors 1,88,520 Bills Receivable 58,440
Bills Payable 69,300 Purchases 8,55,220
Sales 12,18,500 Carriage Inward 12,910
Provision for Doubtful 13,200 Carriage Outward 8,000
debts 3,400 General Expenses 60,850
Interest Received 7,00,000 Insurance 7,830
Building 1,20,000 Bad Debts 6,130
Machinery 16,400 Audit Fees 4,000
Furniture’s 1,56,000 Travelling 3,250
Debtors 1,50,400 Discount 6,200
Opening Stock 9,880 Sales Return 2,850
Cash in Hand Investments 89,220

Dr. P N Rath
 Solution Trial Balance of Mr. Ram as on 31st December 2010.
Sl.no Particulars L.F Dr. Balance. Rs Cr. Balalce.Rs
1 Capital 9,20,000
2 Creditors 1,88,520
3 Bills Payable 69,300
4 Sales 12,18,500
5 Provision for doubtful debts 13,200
6 Interest received 3,400
7 Building 7,00,000
8 Machinery 1,20,000
9 Furniture 16,400
10 Debtors 1,56,000
11 Opening stock 1,50,400
12 Cash in hand 9,880
13 Cash at bank 1,45,340
14 Bills receivable 58,440
15 Purchases 8,55,220
16 Carriage inwards 12,910
17 Carriage outwards 8,000
18 General expenses 60,850
19 Insurance 7,830
20 Bad debts 6,130
21 Audit fees 4,000
22 Travelling 3,250
23 Discount 6,200
24 Sales returns 2,850
25 investments 89,220

Total 24,12,920 24,12,920

Dr. P N Rath
 CASE:3

Following are the balance of different ledger balances & you have
to prepare T.B

Cash in hand Rs 2,000, Purchase return Rs 4,000, Wages Rs 8,000,

Misl. expenses Rs 12,000, sales return Rs 8,000, Capital Rs 22,000,
Carriage inward Rs 2000, carriage outward Rs 1000, Discount
received Rs 1,200, Commission earned Rs 8,00, Machinary 20,000,
Stock Rs 10,000, Debtors Rs 8,000, Creditors Rs 12,000, Sales Rs
44,000, Purchase Rs 28,000, Bank overdraft Rs 14,000, Return
inward Rs 4,000, Return outward Rs 6,000, Bad debt Rs 2,000,
manufacturing expenses Rs 14,000, loan from X Rs 14,000, interest
on investment Rs 1,000.

Dr. P N Rath
 Limitation of T.B

 It is only prepared in those organization where double entry

book keeping are adopted.
 It is very costly & can not be adopted in the small business
houses.
 It check the arithmetical accuracy of the ledger balanced,
but there are certain errors which are not disclosed by the
T.B like posting an amount on the wrong side of the ledger,
wrong totaling of the subsidiary book & posting of wrong
amount in the ledger etc. That is why it is said that trial
balance is not a conclusive proof of the accuracy of the
books of accounts.
 If TB not prepare correctly then the finial account may be
wrong.
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 Types of Errors
Errors

Errors not revealed by the Trial Balance

Errors revealed by the Trial Balance

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Errors not revealed by the Trial Balance

Errors of Omission

Errors of Commission

Errors of Original Entry

Compensating Errors

Complete Reversal of Entries

Errors of Principle

Errors of Transactions
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 Error of Omission

 This error is committed when an entry is completely

omitted to be recorded in the books of accounts.
 It brings no effect on the agreement of the T.B.
 For instance, if a credit purchase is omitted to be
recorded in the Purchase Day Book, then it will be
omitted to be posted both in the Purchase Account and
the Supplier’s Account.
 Credit sale to X has not been recorded at all.
 Drawings of Rs50000 cash by the proprietor was not
recorded.

Dr. P N Rath
 Error of Commission

 Posting is done to the correct side of the ledger but to a

wrong account.
 Kind of error where we have entered the correct amounts
but in wrong person’s account.
 As a result of the error the agreement of the TB will not
affected.
 For example sales of goods to Mr. A were entered in Mr. B
account.
 Payment of Rs10000 cash by a customer A. John was
wrongly posted to the account of another customer, B.
Johan

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 Error of Original Entry

 The original figure may be incorrectly entered although the

correct double-entry principle has been observed using this
incorrect figure.
 Entering wrong original figure or amount in accounts.
 For example, a purchase of Rs1000 was entered as Rs2000
in the books of accounts. A Rs3000 sale to Mr. Z was
wrongly entered as Rs5000 in sales account and Mr. Z
account.
 Credit sales of Rs 8700 to Kay was recorded in the Sales
Account and Kay's account as Rs 7800.

Dr. P N Rath
 Compensating Errors

 When an error is counter balanced by another error.

 Errors (or error) on one side of the ledger are
compensated by an error (or errors).
 If one account in the ledger is debited with Rs 500 less
and another account in the ledger is credited Rs 500 less,
these errors cancel themselves. That is, one error is
neutralized by similar error on the opposite side.
 Ram’s account was debited for Rs 1000 instead of Rs
100. Sam’s account was debited for Rs 100 instead of Rs
1000.

Dr. P N Rath
 Complete Reversal of Entries

 An account that should be debited is credited and vice versa.

 These errors occur when we debit and credit the two or
more aspects of a transaction wrongly using correct figures
or amounts.
 For example we have received cash Rs 5000 from Mr. Z.
The correct entry should be Cash=Debit and Mr. Z=Credit
but we have recorded as Mr. Z=Debit and Cash=Credit.
However, the trial balance appears to be balance.
 A cheque Rs 200000 received from Cyril was debited to the
account of Cyril and credited to the Bank Account.

Dr. P N Rath
 Errors of Principle
 This error arises when transactions are not recorded as
per the fundamental principle of Book-keeping.
 An entry is made in the wrong class of account.
 For instance, purchase of furniture is debited to Purchase
Account, instead of Furniture Account; Wages paid for the
erection of plant is debited to Wages Account, instead of
Plant Account; the amount spent on extension of building
is debited to Repairs Account instead of Building Account
etc.
 These types of errors do not affect the total debits and
total credits but affect the principle of book-keeping.

Dr. P N Rath
 Errors of Transactions

 Error of transition can be defined as switching the

sequence of digits of amount or figure of a transaction.
 This is one of the most common errors and it’s very
hard to trace. When both debit and credit of a
transaction is affected by the error of transition, trial
balance’s debit and credit sides would be equal.
 For example sales amount to Rs123 were entered as
Rs 321. A purchase of equipment worth Rs 72 was
entered as Rs 27 in equipment account and cash
account respectively.

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Dr. P N Rath
 Errors revealed by the Trial Balance

Errors in Calculation

Errors in Omission of One Entry

Posting to the Wrong Side of An

Account

Errors in Amount

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 Errors in Calculation

 If there is any miscalculation of the Trial Balance

totals or the net account balances, the Trial Balance
will not balance.

 e.g. There was an error in the calculation of the cash

balance, causing the Trial Balance totals not to
balance too.

Dr. P N Rath
 Errors in Omission of One Entry

 Omission of either the debit or credit entry of a

transaction will cause the totals of the Trial
Balance not to agree.

 e.g. A cheque of Rs 500000 received for

commission was debited to the Bank Account
only

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 Posting to the Wrong Side of An Account

 Entry into the wrong side of an account will cause

one side of the ledger to be more than the other.

 e.g. A cheque of Rs 80000 paid to creditor, Ram

was credited instead of debited to his account.

Dr. P N Rath
 Errors in Amount

 If the debit entry of a transaction differs in

amount with the credit entry, the Trial Balance
will not balance.

 e.g. Cash of Rs134 received from John was

debited to the Cash Account as Rs134 and
credited to the account of John as Rs 143.

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Suspense Accounts

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When the trial balance does not agree, the business
man normally put the difference in the TB to a
newly opened account called suspense account.
Then TB is balance automatically. Later when errors
are discovered , these are corrected through
suspense account. When all the said errors are
rectified suspense account is closed automatically.
Errors affecting the TB , which was discussed above
are known as one side errors and these errors are
closed through suspense account.

Dr. P N Rath
 Double Side errors

The errors which was affecting both debit & credit

side is known as double side errors. These errors
affect two accounts and can be rectified through
journal entries. The double side errors do not affect
the TB.

Dr. P N Rath
 Assignment

Following are the balance of different ledger balances & you have to
prepare Trial Balance of Mr. Ram for the year ended 31st March 2010.
Cash in hand Rs 2,000, Purchase return Rs 4,000, Wages Rs 8,000,
Misl. expenses Rs 12,000, Postage & Stationary Rs 2,500, Closing Stock
Rs 11,500, sales return Rs 8,000, Capital Rs 22,000, Carriage inward
Rs 2000, carriage outward Rs 1000, Discount received Rs 1,200,
Commission earned Rs 800, Accumulated Depreciation Rs 2,000,
Machinary Rs20,000, Debtors Rs 8,000, Creditors Rs 12,000, Sales Rs
44,000, Cost of goods sold Rs 2,000, Retained Earning Rs
4,000,Purchase Rs 28,000, Bank overdraft Rs 14,000, Return inward
Rs 4,000, Return outward Rs 6,000, Bad debt Rs 2,000, manufacturing
expenses Rs 14,000, loan from X Rs 24,000, interest on investment Rs
1,000 earned, dividend received Rs10,000, depreciation 8,000 &
goodwill 12,000.

Dr. P N Rath
 Solution Trial Balance of Mr.Ram as on 31st March 2010.
Sl.No Particulars L.F Dr. Amounts Cr. Amounts
1 Cash in hand 2,000
2 Purchase return 4,000
3 Wages 8,000
4 Misc. Expenses 12,000
5 Postage & Stationary 2,500
6 Closing Stock 11,500
7 Sales return 8,000
8 Capital 22,000
9 Carriage inward 2,000
10 Carriage outward 1,000
11 Discount received 1,200
12 Commission earned 800
13 Accumulated Depreciation 2,000
14 Machinery 20,000
15 Debtors 8,000
16 Creditors 12,000
17 Sales 44,000
18 Cost of goods sold 2,000
19 Retained earning 4,000
20 Purchase 28,000
21 Bank Overdraft 14,000
22 Return inward 4,000
23 Return outward 6,000
24 Bad debt 2,000
25 Manufacturing expenses 14,000
26 Loan from X 24,000
27 Interest on investment 1,000
28 Dividend received 10,000
29 Depreciation 8,000
30 Goodwill 12,000

Dr. P N Rath
1,45,000 1,45,000