TRIAL BALANCE

In the double entry system every entry has its corresponding credit and debit. It follows, that at any given point of time, the posting from Journal, day books and cash book to the ledger is completed, the debit balances standing in all the ledgers including the cash book will equal the credit balances. At the end of the financial period (or at some other date) these balances are extracted and a schedule is prepared in journal form is called a Trial Balance. Thus the total of debit balances appearing in the Trial Balance must agree with the total of credit balances of appearing in the Trial Balance.

The next stage after posting accounts to the ledger is the preparation of a Trial Balance. The debit and credit balances of accounts are entered in this statement. The total of the debit and the total of the credit side must agree. An agreement indicates reasonable accuracy of the accounting work.

The trial balance helps in ascertaining arithmetical accuracy of the ledger accounts, location of errors and in the preparation of financial statements.

Objects of preparing Trial Balance :

1.        It forms the very basis on which final accounts are prepared.

2.        It helps in knowing the balance on any particular account in the ledger.

3.        It is used as a test of arithmetical accuracy.

However, a Trial Balance is not a conclusive proof of absolute accuracy of the accounts. It does not indicate the absence of an error. Thus, a non-tallied Trial Balance indicates the presence of book-keeping errors.

  

Errors disclosed by the Trial Balance :

A Trial Balance will not agree on account of the following errors :

(i)      Wrong posting of entries i.e. A debit entry of Rs. 1,000 for purchase of furniture wrongly posted as Rs. 100 in the account.

(ii)      Omission of posting of debit or credit e.g. A debit entry of Rs. 1,000 for purchase of furniture is not posted at all.

(iii)     Duplication of posting e.g. when debit entry of Rs. 1000 for purchase of furniture has been posted twice in the account.

(iv)      Wrong side of posting e.g. when debit entry is posted on the credit side or credit entry is posted on the debit side, e.g. when a debit entry of Rs. 1000 is posted on the credit side, i.e. when debit entry of Rs. 1000 is posted on the credit side and vice versa.

(v)       Errors in casting the totals of debit or credit side of the Trial Balance.

(vi)      Wrong transfer of balances in the Trial Balance.

(vii)      Omission of entering the balance of account in the Trial Balance.

(viii)     Balance of cash book omitted to be recorded in the Trial Balance.

(ix)      Wrong balancing of account.

(x)       Errors in the total or posting or entries of subsidiary book.

(xi)      Wrong carry forward of balance in the various books, i.e. day books, cash book, etc.

Errors not disclosed by Trial Balance

The following errors do not affect the agreement of the Trial Balance :

(i)      Errors or omission ; omission to record any transaction

(ii)      Posting of wrong amount both debit and credit side of the account

(iii)     Error made in posting of debit or credit entry is compensated by an identical error of equal amount. These errors are known as compensating errors.

(iv)      Errors made in posting a transaction on the correct side of wrong account.

(v)        Recording a transaction twice erroneously. These are known as errors of duplication.

(vi)      Errors of principle – when the accounting principle is disregarded e.g. a capital item as revenue item and vice versa, i.e. purchase of furniture posted to Purchases Account.

 Methods of locating errors in Trial Balance :

The following are some of the ways of detecting errors in the Trial Balance –

(i)       When digits are wrongly interchanged — it causes the error to occur in multiples of 9. Therefore the difference is a multiple of 9, there are good chances of error occurring in transposition of digits, i.e. when 97 is recorded as 79.

(ii)       When the difference is an even number divide by 2 and check whether such an amount is wrongly entered on the wrong side of debit or credit.

(iii)      If the difference is a multiple of 10 or 100 or 1000, then there are chances of the error occurring in the totalling.

(iv)       Ensure that all the balances of ledger accounts have been considered in the Trial Balance.

(v)        Ensure that there is no omission of recording the balances from the subsidiary books or cash book.

(vi)       Check all the postings and totals.

If the difference still persists, it should be transferred temporarily to Suspense Account and on locating the errors at a future date, the Suspense Account can be closed.

The format of a trial balance is as follows :

Trial Balance

	Ledger Accounts	Debit	Credit
		Rs.	Rs.

Where the debit and the credit totals of the trial balance do not agree it is an indication that one or more errors have been made. (These errors are discussed in detail in ). The trial balance is the stepping stone for the preparation of financial statements.

Illustration 1:

From the following particulars prepare a Trial Balance as on 30th September 2001 :

Stock 1st October 2000 Rs. 1,380, Debtors Rs. 2,960, Creditors Rs. 1,580, Capital Account 1st Oct. 2000 Rs. 4,100, Drawings Rs. 1,200, Bills Receivable Rs. 770, Bad Debt written off Rs. 190, Provision for Bad and Doubtful Debts Rs. 160, Bills Payable Rs. 470, Wages & Salaries Rs. 1,920, Purchases Rs. 6,580, Sales Rs. 10,670, Bank Rs. 580, Cash Rs. 40, Rent, Rates & Insurance Rs. 330, Sales Returns Rs. 410, Purchases Returns Rs. 280, Fixtures & Fittings Rs. 550, General Expenses Rs. 200, Discounts allowed Rs. 520, Discounts Recd. Rs. 370.

  

Trial Balance as on 30th Sept. 2001

		Dr.	Cr.
	Stock 1st Oct. 2000	(Rs.)	(Rs.)
		1,380
	Debtors and Creditors	2,960	1,580
	Capital Account 1st Oct.2000		4,100
	Drawings	1,200
	Bills Receivable	770
	Bad Debt written off	190
	Provision for Bad & Doubtful Debts		160
	Bills Payable		470
	Wages and Salaries	1,920
	Purchases & Sales	6,580	10,670
	Bank	580
	Cash	40
	Rent, Rates & Insurance	330
	Sales & Purchases Returns	410	280
	Fixtures & Fittings	550
	General Expenses	200
	Discounts	520	370
		17,630	17,630

Illustration 2 : Journalise the following transactions and post them to Ledger and balance the accounts. Also prepare a Trial Balance as on 30th April 2003.

2003.

April 1 Ravi started business with Rs. 15,000 of which Rs. 4,000 were borrowed at 15% p.a. from Shri Sashi.

2            Purchased goods worth Rs. 4,000 from Anant at 2% trade discount.

3            Cash sales to Madan Rs. 1,200.

6     Credit sales to Salvi Rs. 2,000 less trade discount 2%.

9 Pard cash Rs. 1,950 to Anant and received discount of Rs. 10 12 Received Rs. 1,950 from Salvi in full settlement of his dues. 14 Returned goods of the price of Rs. 100 to Anant.

16     Paid into bank Rs. 5,000.

18           Issued a cheque for Rs. 1,000 to Anant on account.

19           Purchased goods of Rs. 2,000 from Anant.

22 Sold foods costing Rs. 1,000 at 25% profit to Ratan. 22 Received commission Rs. 800 from S & Co.

24     Received a cheque for Rs. 395 from Ratan & he was allowed discount Rs. 5.

25     Ratan returned goods of Rs. 50.

30     Paid Interest on loan Rs. 50 to Sashi.

30 Paid Salaries Rs. 2,000 out of which Rs. 1,200 paid by cheque. 30 Paid into Bank Rs. 500.

30     Paid Office Rent by cheque Rs. 300.

Solution :				JOURNAL
Date (2003)		Particulars		L.F.	Dr. (Rs.)	Cr. (Rs.)
Apr 1	Cash A/c			Dr.	15,000
	To Capital A/c					11,000
	To Sashi’s Loan A/c					4,000
	(Cash brought into business and loan taken from Sashi
	@ 15% to start the business)
Apr 1	Purchases A/c			Dr.	3,920
	To Anant’s A/c					3,920
	(Credit purchases from Anant)
Apr 3	Cash A/c			Dr.	1,200
	To Sales A/c					1,200
	(Cash sales)
Apr 6	Salvi’s A/c			Dr.	1,960
	To Sales A/c					1,960
	(Credit Sales to Salvi)
Apr 9	Anant’s A/c			Dr.	1,960
	To Cash A/c					1,950
	To Discount A/c					10
	(Paid cash to & received discount from Anant.)
Apr 12	Cash A/c			Dr.	1,950
	Discount A/c			Dr.	10
	To Salvi’s A/c					1,960
	(Received cash from & allowed discount to Salvi)
Apr 14	Anant’s A/c			Dr.	98
	To Returns Outwards A/c					98
	(Returned goods to Anant)
Apr 16	Bank A/c			Dr.	5,000
	To Cash A/c					5,000
	(Paid cash into Bank)

				Basics of Financial Accounting
Apr 18	Anant A/c					Dr.	1,000
	To Bank A/c						1,000
	(Issued a cheque to Anant)
Apr 19	Purchase A/c					Dr.	2,000
	To Anant A/c						2,000
	(Credit purchases from Anant)
Apr 22	Ratan’s A/c					Dr.	1,250
	To Sales A/c						1,250
	(Credit sales to Ratan)
Apr 22	Cash A/c					Dr.	800
	To Commission A/c						800
	(Received commission)
Apr 24	Cash A/c					Dr.	395
	Discount A/c					Dr.	5
	To Ratan’s A/c						400
	(Received a cheque from & allowed discount to Ratan)
Apr 25	Returns Inwards A/c					Dr.	50
	To Ratam’s A/c						50
	(Received goods returned by Ratan)
Apr 30	Interest A/c					Dr.	50
	To Cash A/c						50
	(Paid interest for April 1993, to Sashi on loan taken
	from him)
Apr 30	Salaries A/c					Dr.	2,000
	To Cash A/c						800
	To Bank A/c						1,200
	(Paid salary Rs. 800 in cash and Rs. 1,200 by cheque)
Apr 30	Bank A/c					Dr.	500
	To Cash A/c						500
	(Paid cash into bank)
Apr 30	Rent A/c					Dr.	300
	To Bank A/c						300
	(Issued a cheque for office rent for April, 1993)

   

  

LEDGER

Dr.		Cash Account			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 1	To Capital A/c	11,000	Apr 9	By Anant’s A/c	1,950
Apr 1	To Sashi’s Loan A/c	4,000	Apr 16	By Bank A/c	5,000
Apr 3	To Sales A/c	1,200	Apr 30	By Interest A/c	50
Apr 12	To Salvi’s A/c	1,950	Apr 30	By Salaries A/c	800
Apr 22	To Commission A/c	800	Apr 30	By Bank A/c	500
Apr 24	To Ratan’s A/c	395	Apr 30	By Balance c/d	11,045
		19,345			19,345
May 1	To Balance b/d	11,045

Dr.		Bank A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 16	To Cash A/c	5,000	Apr 18	By Anant’s A/c	1,000
Apr 30	To Cash A/c	500	Apr 30	By Salaries A/c	1,200
			Apr 30	By Rent A/c	300
			Apr 30	By Balance c/d	3,000
		5,500			5,500
May 1	To Balance b/d	3,000

Dr.		Salaries A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 30	To Cash A/c	800	Apr 30	By Balance c/d	2,000
Apr 30	To Bank A/c	1,200
		2,000			2,000
May 1	To Balance b/d	2,000

Dr.		Rent A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 30	To Bank A/c	300	Apr 30	By Balance c/d	300
		300			300
May 1	To Balance b/d	300

		Basics of Financial Accounting
Dr.		Commission A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 30	To Balance c/d	800	Apr 22	By Cash A/c	800
		800			800
			May 1	By Balance b/d	800
Dr.		Interest A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 30	To Cash A/c	50	Apr 30	By Balance c/d	50
		50			50
May 1	To Balance b/d	50
Dr.		Discount A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 12	To Salvi’s A/c	10	Apr 9	By Anant	10
Apr 24	To Ratan’s A/c	5	Apr 30	By Balance c/d	5
		15			15
May 1	To Balance b/d	5
Dr.		Capital A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 30	To Balance c/d	11,000	Apr 1	By Cash A/c	11,000
		11,000			11,000
			May 1	By Balance b/d	11,000
Dr.		Sashi’s Loan A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 30	To Balance c/d	4,000	Apr 1	By Cash A/c	4,000
		4,000			4,000
			May 1	By Balance b/d	4,000

		Financial Accounting Fundamentals
Dr.		Salvi’s A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 6	To Sales A/c	1,960	Apr 12	By Cash A/c	1,950
			Apr 12	By Discount A/c	10
		1,960			1,960
Dr.		Anant’s A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 9	To Cash A/c	1,950	Apr 2	By Purchases A/c	3,920
Apr 9	To Discount A/c	10	Apr 19	By Purchases A/c	2,000
Apr 14	To Returns Outwards A/c	98
Apr 18	To Bank A/c	1,000
Apr 30	To Balance c/d	2,862
		5,920			5,920
			May 1	By Balance b/d	2,862
Dr.		Ratan’s A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 22	To Sales A/c	1,250	Apr 24	By Cash A/c	395
			Apr 24	By Discount A/c	5
			Apr 25	By Returns Inwards A/c	50
			Apr 30	By Balance c/d	800
		1,250			1,250
May 1	To Balance b/d	800
Dr.		Purchases A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 2	To Anant	3,920
Apr 19	To Anant	2,000	Apr 30	By Balance c/d	5,920
		5,920			5,920
May 1	To Balance b/d	5,920

		Basics of Financial Accounting
Dr.		Sales A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
			Apr 3	By Cash A/c	1,200
			Apr 6	By Salvi A/c	1,960
Apr 30	To Balance c/d	4,410	Apr 22	By Ratan A/c	1,250
		4,410			4,410
			May 1	By Balance b/d	4,410
Dr.		Returns Outward A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 30	To Balance c/d	98	Apr 14	By Anant	98
		98			98
			May 1	By Balance b.d	98
Dr.		Returns Inwards A/c			Cr.
Date	Particulars	Amount	Date	Particulars	Amount
2003		Rs.	2003		Rs.
Apr 25	To Ratan’s A/c	50	Apr 30	By Balance c/d	50
		50			50
May 1	To Balance b/d	50

TRIAL BALANCE as on 30th April, 2003.

	Dr. (Rs.)	Cr. (Rs.)
Cash A/c	11,045
Bank A/c	3,000
Salaries A/c	2,000
Rent A/c	300
Commission A/c		800
Interest A/c	50
Discount A/c	5
Capital A/c		11,000
Sashi’s Loan A/c		4,000
Creditor (Anant)		2,862
Debtor (Ratan)	800
Purchases A/c	5,920
Sales A/c		4,410
Returns Outwards A/c		98
Returns Inwards A/c	50
	23,170	23,170

 Illustration 3 :

Enter the following transactions in the subsidiary books and post them into ledger and prepare a Trial Balance.

	2002						Rs.
	1 Dec.	Mr. X started a business				1,00,000
	5 Dec.	Purchased furniture from Vikram Furniture for					20,000
	7 Dec.	Purchased goods for cash					15,000
	10 Dec.	Purchased goods from AB & Co. for Rs. 30,000. Trade Discount 20%
	12 Dec.	Opened a bank account by depositing					25,000
	14 Dec.	Sold goods for cash					15,000
	15 Dec.	Purchased Stationery for Rs. 1,000 from Sayyed Stationery Mart
	18 Dec.	Sold goods to Yusuf					5,000
	20 Dec.	Goods returned by Yusuf					400
	21 Dec.	Payment to AB & Co. by cheque					5,000
	22 Dec.	Purchased goods on Credit from Ramesh & Co. for					20,000
	23 Dec.	Returned goods to Ramesh & Co. worth					2,000
	23 Dec.	Paid Electricity Bill for					400
	29 Dec.	Cash Sale for					5,000
	30 Dec.	Withdraw Rs. 2,000 for private use from Bank.
	Solution :
Dr.			Cash Book (with Bank Column)				Dr.
Date	Particulars	Cash	Bank	Date	Particulars	Cash	Bank
2002		Rs.	Rs.	2002		Rs.	Rs.

Dec 1	To Capital	1,00,000
Dec 12	To Cash A/c		25,000
	(Opening A/c)
Dec 14	To Sales	15,000
Dec 29	To Sales	5,000
		1,20,000	25,000
2003
Jan 1	To Balance b/d	79,600	18,000

Dec 1	By Purcahse A/c (cash)	15,000
Dec 12	By Bank A/c	25,000
Dec 21	By AB & Co.		5,000
Dec 23	By Electricity	400
Dec 30	By Drawing A/c		2,000
Dec 31	By Balance c/d	79,600	18,000
		1,20,000	25,000

  

Purchase Day Book

Date (2002)			Particulars		L.F.		Rs.
	Dec 10	AB & Co.				30,000
		Less: Trade Discount				6,000	24,000
	Dec 22	Ramesh & Co.					20,000
		Purchases A/c			Dr.		44,000
			Sales Day Book
Date (2002)			Particulars		L.F.		Rs.
	Dec 18	Yusuf					5,000
		Sales A/c			Cr.		5,000
			Purchase Return Book
Date (2002)			Particulars		L.F.		Rs.
	Dec 23	Ramesh & Co.					2,000
		Purchase Return A/c			Cr.		2,000
			Sales Return Book
Date (2002)			Particulars		L.F.		Rs.
	Dec 20	Yusuf					400
		Sales Return A/c			Dr.		400
			Journal Proper
	Date		Particulars		L.F.	Debit	Credit
(2002)						(Rs.)	(Rs.)
	Dec 5	Furniture A/c			Dr.	20,000
		To Vikram Furniture A/c			Cr.		20,000
		(Being furniture purchased on credit)
	Dec 13	Stationery A/c			Dr.	1,000
		To Sayyed Stationary Mart			Cr.		1,000
		(Being purchase of stationery)

 LEDGER of X

Dr.		Capital Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec 31	To Balance c/d	1,00,000	Dec 1 By Cash A/c		1,00,000
		1,00,000			1,00,000
			2003
			Jan 1	By Balance b/d	1,00,000

Dr.		Furniture Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec 5	To Vikram Furniture A/c	20,000	Dec 31	By Balance c/d	20,000
		20,000			20,000
2003
Jan 1	To Balance b/d	20,000

Dr.		Vikram Furniture Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec 31	To Balance c/d	20,000	Dec 5	By Furniture A/c	20,000
		20,000			20,000
			2003
			Jan 1	By Balance b/d	20,000

Dr.		Purchases Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec. 9	To Cash A/c	15,000
Dec. 31	To Purchase day book	44,000	Dec. 31	By Balance c/d	59,000
		59,000			59,000
2003
Jan 1	By Balance b/d	59,000

  

		Basics of Financial Accounting
Dr.		Sales Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
			Dec. 14	By Cash A/c	15,000
			Dec. 29	By Cash A/c	5,000
Dec. 31	To Balance c/d	25,000	Dec. 31	By Sales Day Book	5,000
		25,000			25,000
			2003
			Jan 1	To Balance b/fd	25,000
Dr.		Stationery Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec. 15	To Sayyed Stationery Mart	1,000	Dec. 31	By Balance c/d	1,000
		1,000			1,000
2003
Jan. 1	By Balance b/d	1,000
Dr.		Sayyed Stationery Mart			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec. 31	To Balance c/d	1,000	Dec. 15	By Stationery A/c	1,000
		1,000			1,000
			2003
			Jan. 1	By Balance b/d	1,000
Dr.		Electricity Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec. 23	To Cash	400	Dec. 31	By Balance c/d	400
		400			400
2003
Jan. 1	To Balance b/d	400
Dr.		Drawings Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec. 30	To Bank	2,000	Dec. 31	By Balance c/d	2,000
		2,000			2,000
2003
Jan. 1	To Balance b/d	2,000

  

		Financial Accounting Fundamentals
Dr.		Purchases Return Account			Cr
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec. 31	To Balance c/d	2,000	Dec. 31	By Purchase Returns	2,000
		2,000			2,000
			2003
			Jan 1	By Balance b/d	2,000
Dr.		Sales Return Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec. 31   To Sales Return Book		400	Dec. 31	By Balance c/d	400
		400			400
2003
Jan 1	To Balance b/d	400
Dr.		A B & Co. Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec. 21	To Bank A/c	5,000	Dec. 10	By Purchases A/c	24,000
Dec. 31	To Balance c/d	19,000
		24,000			24,000
			2003
			Jan. 1	By Balance b/d	19,000
Dr.		Ramesh & Co. Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec. 23	To Purchases Returns A/c	2,000	Dec. 22	By Purchases A/c	20,000
Dec. 31	To Balance c/d	18,000
		20,000			20,000
			2003
			Jan. 1	By Balance b/d	18,000

  

	Basics of Financial Accounting
Dr.		Yusuf Account			Cr.
Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
Dec. 18	To Sales A/c	5,000	Dec. 20	By Sales Return	400
			Dec. 31	By Balance c/d	4,600
		5,000			5,000
2003
Jan. 1	To Balance b/d	4,600
	TRIAL BALANCE of X  as on 31th December, 2002.
				Dr. (Rs.)	Cr. (Rs.)
	Capital Account				1,00,000
	Furniture Account			20,000
	Vikram Furniture Account				20,000
	Purchases Account			59,000
	Sales Account				25,000
	Stationery Account			1,000
	Sayyed Stationery Mart				1,000
	Electricity Account			400
	Drawings Account			2,000
	Purchases Return Account				2,000
	Sales Return Account			400
	AB & Co. Account				19,000
	Ramesh & Co. Account				18,000
	Yusuf Account			4,600
	Cash Account			79,600
	Bank Account			18,000
	Total			1,85,000	1,85,000