TRIAL BALANCE
When posting of all the transactions into the Ledger is completed and the accounts are balanced off, it becomes necessary to check the arithmetical accuracy of the accounting work. For this purpose the balance of each and every account in the Ledger is put on a list. The list so prepared is called a trial balance.. Trial Balance may be defined as a statement which contains balances of all ledger accounts on a particular date.
FORMAT
Trial Balance As on March 31, 2009 Cr. Particulars L.F Dr Balance (in Rs) Cr Balance (in Rs)
OBJECTIVES OF PREPARING A TRIAL BALANCE
Following are the objectives of preparing Trial Balance (i) To check arithmetical accuracy (ii) To help in preparing Financial Statements (iii) Helps in locating errors (iv) Helps in comparison (v) Helps in making adjustments
Trial Balance is generally prepared at the end of the year. However it can be prepared at any time during the accounting year to check the accuracy of the posting.
METHODS OF PREPARATION OF TRIAL BALANCE
A) Total Method : In this method , after totaling each side of the ledger account, the respective debit and credit totals of the ledger accounts are transferred to the respective sides of the Trial Balance Trial Balance As on March 31, 2009 Dr Balance (in Rs) 25,000 12,000
Particulars Cash A/c Capital A/c Purchases A/c Total
L.F
Cr. Cr Balance (in Rs)
7,000 20,000 4
METHODS OF PREPARATION OF TRIAL BALANCE
b) Balance Method: According to this method, every ledger account is balanced and only the balance of the ledger account is carried forward to the trial balance. Trial Balance As on March 31, 2009 Dr Balance (in Rs) 18,000 12,000
Particulars Cash A/c Capital A/c Purchases A/c Total
L.F
Cr. Cr Balance (in Rs)
20,000 5
TYPES OF ERRORS
The errors can be broadly classified as
Errors
Errors of Principle
Clerical Errors
Errors of Omission
Errors of Commission
Compensating Errors
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ERRORS of PRINCIPLE
When a transaction is recorded in contravention of accounting principles. For example: Purchase of machinery debited to purchases account. Effect: In this case, there will be no effect on Trial Balance as these amounts are correctly placed on the correct side though in the wrong account.
CLERICAL ERRORS
These errors arise because of mistakes committed in the ordinary course of accounting work. These are of three types:
CLERICAL ERRORS
Errors of Omission
Errors of Commission
Compensating Errors
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Errors of Omission
If the transaction is completely or partially omitted in the books of accounts. Errors of Omission can be complete or partial.
Examples: Complete: Purchased goods for Rs 5000. Entry not recorded. In this case trial balance will match Partial: Purchased goods on credit for RS 2000 from Ram In this case trial balance will not match.
Errors of Commission
If while making an entry, the wrong amount is written either in Journal or in the ledger, or entry is made in the wrong side of the account, the error will be an error of commission. Examples: a) Errors in posting as to amount Rs 400 posted as Rs 40 b) Wrong totaling of accounts c) Wrong balancing of accounts d) Posting the same amount twice to an account.
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Compensating errors
If the effect of the errors committed cancels out, the errors will be called compensating errors. The trial balance will agree. For example: X account debited with Rs 150 instead of Rs 120 and Y account with Rs 200 instead of Rs 230
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SUSPENSE ACCOUNT
A suspense account is an account in which the amount of difference in the trial balance is put till such time that errors are located and rectified. When the errors affecting Suspense account are located, they are rectified with the help of the suspense account
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