PREPARATION OF TRIAL BALANCE

DEFINITION OF TRIAL BALANCE

According to Carter , Trial Balance
is the list of debit and credit balances ,

taken out from ledger . It also includes

the balances of cash and bank taken from cash book.

FEATURES OF A TRIAL BALANCE

1) It is a list of balances of all ledger accounts and the cash book .
2) It is just a statement , and not an account 3) It is neither a part of double entry system , nor does it appear in the actual books of accounts . It can be prepared at any time during the accounting period .

5) It is always prepared on a particular date and not for a particular period .

6) It is prepared to check the arithmetical accuracy of the ledger accounts . 7) If the books are arithmetically accurate , the total of all debit balances of a trial balance will be equal to the total of all credit balances .

8) A tallied Trial Balance is not a conclusive proof of the accuracy of the books of accounts

OBJECTIVES OF PREPARING TRIAL BALANCE

1) To ascertain the arithmetical accuracy of the ledger accounts .
2) To help in locating errors . 3) To obtain a summary of the ledger accounts .

4) To help in the preparation of Final Accounts .

PREPARATION OF A TRIAL BALANCE

There are two methods for the preparation of a trial balance

1) Balance Method

2) Total Amount Method

Trial Balance by Balance Method Trial Balance by Total Amount Method

1) A Trial Balance prepared by this method shows the balances of all the ledger accounts . A Trial Balance prepared by this methos shows the total amounts of debit items and the credit items in each ledger account instead of their balances .

2) A trial Balance prepared by this method considers only those accounts which show a balance . If an account shows no balance , it is not included in trial balance .

A Trial Balance prepared by this method considers all the accounts in the ledger .

3) It can be prepared only when all the ledger accounts have been balanced .

It can be prepared immediately after the completion of posting to the ledger

TYPES OF ERRORS
1)Errors affecting Trial Balance 2) Errors not affecting the Trial Balance

ERRORS AFFECTING TRIAL BALANCE

1. 2. 3. Posting only one aspect of the journal entry in the ledger Posting a journal entry to the wrong side of an account Posting of wrong amount in one account and correct in another

4.
5. 6. 7. 8. 9.

Errors of Partial Omission

Double posting in a single account Errors of totaling and balancing of accounts in the ledger . Omitting writing the balance of an account in the Trial Balance. Writing the balance in the wrong column of Trial Balance Totalling the Trial Balance wrongly

ERRORS NOT AFFECTING TRIAL BALANCE

1) Errors of Complete Omission

2) Errors of Commission Errors of recording 3) Compensating Errors 4) Errors of Principle 5) Errors of posting the correct amount in the correct side but in the wrong account

Errors of Omission
If a transaction is not recorded in the books of account or a transaction recorded in the journal is not posted in the ledger. Partial Omission e.g. credit sales recorded in sales account but not in party account.

Errors of Comission
Errors of Recording transaction is incorrectly recorded in the books of original entry Errors in Casting when a mistake is committed in totaling. Error of Posting information recorded in journal incorrectly entered in the ledger . e.g. posting of balance of sales account of Rs 10,050 as Rs 10500.

Error of Principle
When a transaction is recorded in contravention of accounting principle. e.g. expenditure on installation of machinery being treated as revenue expenditure rather than capital expenditure.

Compensating Errors
Those errors the effect of which is nullified by another error of equal amount. e.g. Shyams account debited with Rs 100 instead of Rs 1000 while Rams account debited with Rs 1000 instead of Rs 100.