TRIAL BALANCE

Trial Balance

What is a trial balance?

 It is an internal document.
 It is a listing of all the accounts with their related
balances.
 Before computers, it provided a check on accuracy by
showing whether total debits equal total credits.
 Trial balance

A Trial balance is a statement showing the list of

debit & credit balances of ledger accounts as on a
particular date.

It serves as a link between books of accounts and

the profit & loss a/c & Balance sheet.

Rule:
Debit balances: assets, drawings, expenses & loses
Credit balances: liabilities, capital, incomes & gains
 Trial balance – Debit balances
 Cash/bank
Drawings
Purchases
Furniture, Building etc.
Opening stock/Closing stock
Rent, printing & stationary, salaries etc.
Loans given
Preliminary expenses
Sales returns
P & L a/c (loss)
Trial balance –credit balances

 Capital
Creditors, Bank overdraft, Bills payable etc.
Sales
Purchase Returns
Discount received, interest received etc.
Provision for bad & doubtful debts
Outstanding expenses
P & L a/c (profit)
Reserve fund
 Trial balance

 Thetotal of these debit & credit

balances must be equal. If the totals
do not tally, it indicates that there is
some error.
Locating Trial Balance Errors

What if it doesn’t balance ?

-----------------------------ERROR

Is the addition correct?

Are all accounts listed?
Are the balances listed correctly?
DEBITS CREDITS
Locating Trial Balance Errors

Divide the difference by two.

Is there a debit/credit balance for this
amount posted in the wrong column?
Check journal postings.
Review accounts for reasonableness.
Computerized accounting programs
usually prohibit out-of-balance entries.
The Trial Balance : Errors

Errors affecting trial balance

Errors not affecting trial balance

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Errors affecting trial balance

Incorrect additions
Incorrect recordings
Incorrect debit and credit
Incorrect ledger balance
Incorrect debit and credit in ledger
Incorrect posting
Incorrect missing of transaction
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 There are FOUR types of errors revealed by a
trial balance:

1) Posting to the wrong side of an account.

2) Errors in calculation and balancing
3) Incorrect amounts entered on one entry
4) Omission of one entry.
 Errors not affecting trial balance

Transaction is not journalised

A correct journal entry is not posted
A journal entry is posted twice
Incorrect accounts are used in journalising
or posting
Offsetting errors are made in recording
the amount of a transaction

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A trial balance will not disclose the following types of
errors: (Errors not revealed by the trial balance)

1) Errors of omission
Complete omission of a transaction, because neither a
debit nor a credit is made.

2) Errors of commission
This happens when original figure incorrectly
entered. (Correct double entries but incorrect amounts
were recorded)
3) Compensating errors
This happens where errors cancel out each other. (eg an
error of Rs 100 is exactly cancelled by another Rs 100
error elsewhere).

4) Errors of principles
This happens when the wrong type of account had been
used (eg the purchase of a motor van is debited to a
expense account, such as motor expenses, rather than a fixed
asset account)

5) Complete reversal of entries

This happens when an account should be debited but was
credited (and vice versa)
Rectification of errors:

This depends upon the stage at which the

errors are detected. These stages are:

Before preparation of the Trial Balance

After the Trial Balance but before the
preparation of the final accounts
Before preparation of the Trial Balance

Till this time the ledger accounts are not closed, therefore it is
easy to rectify errors at this stage. There can two types of
such errors:

 Errors where no journal entry is possible for its

rectification: we have to go to the relevant account(s) and
put the figure on the right side of the account. No journal
entry is necessary.

 Complete journal entry can be passed for its

rectification: In this case rectification is done with the help
of a journal entry. Such rectification entries are passed in the
journal proper.
 EX. Goods returned by Ram & Co. worth Rs 7650 has been posted
in the Return Inward (sales return) A/c as Rs 7560 and in Ram &
Co. A/c as Rs 8650.
Ram & Co A/c
Dr Cr
Date Particulars JF Amnt Date Particulars JF Amnt

To Rectification
(8650-7650) 1000

Return Inward A/c

Dr Cr
Date Particulars JF Amnt Date Particulars JF Amnt

To Rectification
(7650-7560) 90
 Where rectification can be done with
passing of journal entry

Ex: Cash received from Ram posted to Shyam A/c Rs 7000.

Sol: Shyam A/c Dr 7000
To Ram A/c 7000
(Cash received from Ram wrongly entered to Shyam’s A/c,
rectification done)

Ex: Salary paid Rs 6000 has been posted to Rent A/c

Sol: Salary A/c Dr. 6000
To Rent A/c 6000
After the Trial Balance but before the
preparation of the final accounts
 This means the ledger a/cs are already closed. To
rectify such errors, journal entries are passed.

 In other words if an account is to be debited for

rectification, another account has to credited by the
same amount, otherwise the Trial Balance will not
tally.

 In case the error is difficult to detect, the difference

is put to an artificial account created temporarily to
make the Trial Balance tally. Such an artificial
account is known as Suspense account.
Suspense Account
 The existence of the ‘Suspense A/c’ in the Trial Balance
means there exist an error. Once this error is detected, it
is rectified by passing journal entries. Upon rectification
of all such errors, the Suspense account is automatically
eliminated from the Trial Balance.

 EX: Purchase account under cast by Rs 1500

Here we have only one account, but to complete the journal entry,
two accounts at least are needed. This unknown side is taken care
by the suspense account. Rectification entry:

Purchase A/c Dr 1500

To Suspense A/c 1500