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 statement book known as Trial Balance and finally totalled to
see if the balance of debit side is equal to the balance of credit side. It forms a
connecting link between the ledger accounts and the final 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 of the ledger and then post them
into debit or credit side of trial balance. In order to identify, that particular account has
debit or credit balance you need to have thorough knowledge of the “Three Golden
Rules” of accounting i.e. you should know thoroughly about Personal accounts, Real
accounts and Nominal 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
(Direct&Indirect) + Debit all
Debit the REAL Debit what Losses expenses
PERSONAL receiver ACCOUNTS comes in
ACCOUNTS 1. Salaries &losses
Eg: 1. All 2. rent
Eg: any person or asset(Current or
firm real or artifical 3. Outstanding
Fixed)-Fruniture,
Credit payment etc. Credit all
1. Capital Credit the Building etc.
what goes B. Income and gains income&
2.Drawings giver 2.Goods - Purchase, gains
out
Sales, purchase 1. Commission
3. Debtors received
return, sales return
4.Creditors 2. Discount received
3. Cash in hand,
cash at bank 3.Prepaid expenses
etc.
METHODS FOR PREPARING TRIAL BALANCE

Total
•It shows the total amount of debit items and credit items
in each ledger account
•It can be prepared immediately after the completion of

Method posting from books of original entry to the ledger.

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

Mehtod

FORMAT OF TRIAL BALANCE

1. Total Method

S.No. NAME OF ACCOUNT L.F. DEBIT CREDIT

1. Capital A/c XXX XXX

2. Purchases XXX XXX

3. Sales XXX XXX

Total …… ……

2. Balance Method

S.No. NAME OF ACCOUNT L.F. DEBIT CREDIT

1. Capital A/c XXX

2. Purchases XXX

3. Sales XXX

Total …… ……
Example:
The following balances are extracted from the books of Mr. Anil. Prepare a Trial
Balance as on 30.06.2019.
Capital 4,70,200
Machinery 1,58,000
Cash in hand 6,000
Sundry Debtors 48,000
Building 3,20,000
Repairs 5,300
Stock on commencement 33,000
Insurance Premium 3,300
Sundry Creditors 26,000
Sales 2,80,000
Return from customers 10,000
Commission paid 750
Telephone Charges 6,450
Rent & Taxes 6,300
Furniture 11,000
Purchases 1,65,000
Return to Creditors 10,000
Discount Earned 1,100
Salaries 70,600
Loan from Mahesh 51,000
Discount allowed 650
Drawings 5000
Bills Receivable 8600
Bad debts 1350
Bills Payable 26,000
Carriage inwards 2000
Carriage outwards 3000

NOTE
Carriage inwards (direct expense) - incurred at the time of
purchasing raw material, before starting production
Carriage outwards (indirect expense) – incurred after production,
product is ready for consumption, so you need to dispatch the item
to various locations for that you need to incur some additional
expenses.
S.No. NAME OF ACCOUNT L.F. DEBIT CREDIT

1 Capital - 4,70,200

2 Machinery 1,58,000 -

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

19 Salaries 70,600 -
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 -

TOTAL 8,64,300 8,64,300