Trial balance.docx

TRIAL BALANCE INTRODUCTION The fundamental principle of Double Entry System of Accounting is that for every debit, there must be corresponding credit. So, if the various accounts in the ledger are  balanced, then the total of all debit balances must be equal to the total of all credit  balances, if the books of accounts are arithmetically correct. Thus, at the end of financial year or at any other time the balances of all the ledger accounts are extracted and are written up in a state statem ment bo book know k nown n as Tr T r i al Bala B alance nce and finally totalled to see if the balance of debit side is equal to the balance of credit side. I t f or ms a

connecti connecting ng link li nk betw betwe een the ledger ledger accounts accounts and the the final fi nal accounts. accounts. DEFINITION Trial Balance  is not an account, it is a statement which shows debit balances and credit balances of all accounts in the ledger with a view to test arithmetical accuracy of the books. PREPARATION OF TRIAL BALANCE Trial balance is always prepared on a particular date and not for a particular period. To prepare trial balance firstly list out all the accounts accoun ts of the ledger and then post p ost them into debit or credit side of trial balance. In order or der to identify, that particular account has debit or credit balance you need to have thorough knowledge of the “Three Golden thorough ly about P er sonal Rules” of accounting i.e. you should know thoroughly sonal accounts, accounts, R eal

accounts accounts and No Nomi nal accounts. accounts. While preparing trial balance firstly you need to identify whether the item belong to  personal a/c, real a/c or nominal a/c then based on this knowledge you can easily put it on debit or credit side as per the 3 Golden Rules of accounting. THREE GOLDEN RULES OF ACCOUNTING NOMINAL  ACCOUNTS Eg: A. Expenses

PERSONAL  ACCOUNTS

Debit the receiver

Eg: any person or firm real or artifical 1. Capital 2.Drawings 3. Debtors 4.Creditors

Credit the giver

REAL  ACCOUNTS

Eg: 1. All asset(Current or Fixed)-Fruniture, Building etc. 2.Goods 2.Goods - Purchase Purchase,, Sales, purchase return, sales return 3. Cash in hand, cash at bank

Debit what comes in

(Direct&Indirect) + Losses 1. Salaries

Debit all expenses &losses

2. rent Credit what goes out

3. Outstanding payment etc. B. Income and gains

1. Commission received 2. Discount received 3.Prepaid expenses etc.

Credit all income& gains

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METHODS FOR PREPARING TRIAL BALANCE

Total Method Balance Mehtod

It shows the total amount of debit items and credit items in each ledger account It can be prepared immediately after the completion of posting from books of original entry to the ledger.

•

•

It shows the balance of all the accounts in the ledger. It can be prepared only when all the ledger accounts have been balanced.

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FORMAT OF TRIAL BALANCE

1. T otal otal Me M ethod thod S.No.

NAME OF ACCOUNT

L.F.

DEBIT

CREDIT

1.

Capital A/c

XXX

XXX

2.

Purchases

XXX

XXX

3.

Sales

XXX

XXX

……

……

DEBIT

CREDIT

Total

 2. B alanc lance e M ethod hod S.No.

NAME OF ACCOUNT

1.

Capital A/c

2.

Purchases

L.F.

XXX XXX

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Example:

The following balances are extracted from the books of Mr. Anil. Prepare a Trial Balance as on 30.06.2019. Capital Machinery Cash in hand Sundry Debtors Building Repairs Stock on commencement Insurance Premium Sundry Creditors Sales Return from customers Commission paid Telephone Charges Rent & Taxes Furniture Purchases Return to Creditors Discount Earned Salaries Loan from Mahesh Discount allowed Drawings Bills Receivable Bad debts Bills Payable Carriage inwards Carriage outwards NOTE

expense) - incurred at the time of Carriage inwards  (direct expense)  purchasing raw material, before starting production production expense)  –   incurred after production, Carriage outwards  (indirect expense)  product is ready for consumption, so you need to dispatch the item to various locations for that you need to incur some additional

4,70,200 1,58,000 6,000 48,000 3,20,000 5,300 33,000 3,300 26,000 2,80,000 10,000 750 6,450 6,300 11,000 1,65,000 10,000 1,100 70,600 51,000 650 5000 8600 1350 26,000 2000 3000

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S.No.

NAME OF ACCOUNT

L.F.

DEBIT

CREDIT

-

4,70,200

1,58,000

-

1

Capital

2

Machinery

3

Cash in hand

6,000

-

4

Sundry Debtors

48,000

-

5

Building

3,20,000

-

6

Repairs

5,300

-

7

Stock on commencement

33,000

-

8

Insurance Premium

3,300

-

9

Sundry Creditors

-

26,000

10

Sales

-

2,80,000

11

Return from customers

10,000

-

12

Commission paid

750

-

13

Telephone Charges

6,450

-

14

Rent & Taxes

6,300

-

15

Furniture

11,000

-

16

Purchases

1,65,000

-

17

Return to Creditors

-

10,000

18

Discount Earned

-

1,100

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20

Loan from Mahesh

-

51,000

21

Discount allowed

650

-

22

Drawings

5000

-

23

Bills Receivable

8600

-

24

Bad debts

1350

-

25

Bills Payable

-

26,000

26

Carriage inwards

2000

-

27

Carriage outwards

3000

-

8,64,300

8,64,300

TOTAL