Trial balance is prepared with the help of ledger accounts, cash book and bank book. It is compulsory for every business firm to prepare trial balance because without preparing the trial balance, it is not possible to prepare final accounts. More over, with the help of trial balance, arithmetical mistakes in entries, postings and balancing, can be traced out.
After posting the entries from day books into ledger, the balancing of individual accounts are done.
Balancing means the difference between the total of debit entries and credit entries of a particular account on a particular date. If the total of debit side of ledger is more than the total of credit side on a particular date then the balance shall be called as Debit balance or Dr. Balance. Similarly, if the total of credit side of a ledger is more than total of debit side then it is Credit Balance or Cr. Balance. If the total of both sides of ledger are equal then it is NIL.
Cash balance never goes in negative.
Regarding balancing of Bank Book, If the total of receipt side is more than total of payment side then it will be Debit Balance and if total of payment side is more than total of receipts side then it will be credit balance.
Now from the following example, we will try to understand trial balance.
What is Trial Balance? Trial balance is periodical statement which is made on a particular date with the help of the ledger and cash books to check the arithmetical errors in the accounts. The closing balances of the accounts are shown in trial balance on a particular date. It is not possible to make Trading Account, Profit & Loss Account and Balance Sheet unless the trial balance is prepared. Closing balance means the balances of ledger accounts at the date on which the trial balance is prepared.
Trial balance is prepared in tabular form. It contains debit column for debit balance of ledger accounts and credit column for credit balances of ledger accounts. Thus, the trial balance shows the summary of closing balances of all accounts on a particular date.
EXAMPLE OF A TRIAL BALANCE
Illustration:- Prepare the trial balance of M/s ABC Agencies with the help of the following account balances, taken from ledger as on 30.06.2015:-
S.N. ACCOUNT HEADS Dr. OR Cr. LEDGER BALANCES
1 Machinery Account Dr. 200000/=
2. Furniture Account Dr. 15000/=
3. Bank of India Account Dr. 25000/=
4. Purchase Account Dr. 1200000/=
5. Sales Account Cr. 1400000/=
6. Opening Stock Dr. 400000/=
7. Cartage Expenses Account Dr. 5000/=
8. Salaries Expenses Account Dr. 21000/=
9. Telephone Expenses Account Dr. 2000/=
10. Cash Balance (or) Cash in Hand Dr. 10000/=
11. M/s Morning Place Cr. 5000/=
12. M/s Gift House Dr. 55000/=
13. Capital Account Cr. 528000/=
14. Closing Stock Dr. 120000/=
M/S ABC AGENCIES
TRIAL BALANCE AS ON 30.06.2015
PARTICULARS AMOUNT DR. AMOUNT CR.
Machinery Account 200000.00
Furniture Account 15000.00
Bank of India 25000.00
Purchase Account 1200000.00
Sales Account 1400000.00
Opening Stock 400000.00
Cartage Expenses Account 5000.00
Salaries Expenses Account 21000.00
Telephone Expenses Account 2000.00
Cash In Hand 10000.00
M/s Morning Place 5000.00
M/s Gift House 55000.00
Capital Account 528000.00
TOTAL 1933000.00 1933000.00
- Closing stock is never shown in trial balance.
- The Totals of both sides of Trial Balance must be equal.
- If the totals of both sides of Trial balance are not equal then the following steps should be taken to find out the mistakes:-
- Recheck the totals of trial balance.
- Make sure that the balances of ledger are correctly written in trial balance i.e. credit balance in credit side of trial balance and debit balance of ledger in debit side of trial balance should be written.
- Check the totaling and balancing of ledger.
- Make sure that each and every balance of ledger is entered in trial balance.
- To check that each and every entry is posted in to ledger in correct side.
- To check that the correct amount is posted in to ledger.
By doing above exercise one can easily trace out the differences in totals of both sides of trial balance.
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