ACCOUNTING RECORDS

Trial Balance
MEANING
TrialBalance is a statement which is
prepared in a Separate
Paper/sheet by taking up all the
ledger account balances on a
particular date in order to verify the
arithmetical accuracy of the account
in the ledger and putting the Debit
in one side and Credit in another.
PRINCIPLE

Total debit entries = Total credit entries

For each debit entry there is a credit entry.

For each credit entry there is a debit entry.

PURPOSE/OBJECTIVE OF TRIAL
BALANCE
To have all balances of all the accounts
of the ledger at one place.

To have a check whether the

transactions has been recorded by using
double entry principle
PURPOSE/OBJECTIVE OF TRIAL
BALANCE
To have arithmetic accuracy of other books of
accounts because of the agreement of the trial
balance.
LIMITATIONS OF TRIAL BALANCE:
Trial balance can be prepared only in the
concerns where double entry system of
accounting is adopted. This system is very
costly and cannot be adopted by small concerns
It is not a conclusive proof and there may be
chances of not entering entire account or
entering it twice by mistake.
PREPARATION / METHODS OF
TRIAL BALANCE
TOTAL METHOD: Under this method,
Trial balance is prepared by taking up the
totals of both Debit and Credit of all
ledger accounts.
BALANCE METHOD: Under this
method, Trial balance is prepared by
taking up the balance of each ledger
account.
COMPOUND METHOD: It is the
combination of above two methods. it is
also known as Total-Cum-balance method
ERRORS, WHICH ARE DISCLOSED
BY A TRIAL BALANCE:
a) Posting on the wrong side of an account and
posting of a wrong amount to a ledger account
also creates disagreement of the trial balance.
b) Omission of posting of an entry from the
subsidiary book.
c) Errors in casting or totaling of subsidiary
books or accounts or if there is any error in the
balancing the ledger account also came
disagreement of trial balance.
d) If any item is posted twice in a ledger account
from subsidiary book or put a ledger balance on
the wrong column, the trial balance will not
agree.
ERRORS, WHICH ARE NOT
DISCLOSED BY A TRIAL BALANCE
a) Errors of Omission: when the transition is
not at all recorded in the books of account i.e.,
neither in the debit side nor in the credit side of
the account -Trial balance will agree.
b) Error of Commission: when there is any
variation in figure/amount e.g. Instead of P 800
either P 80 or P 8000 is recorded in both sides of
ledger account Trial balance will agree
c) Error of Principles: when wrong posting is
made in the books of account i.e. accounts are
prepared not according to double entry principle
e.g. Purchased plant wrongly debited to purchase
account Trial balance will agree.
ERRORS, WHICH ARE NOT
DISCLOSED BY A TRIAL BALANCE [
CONT.. ]
d) Error of Misposting: When wrong
posting is made to a wrong account
instead of a correct one although amount
is correctly recorded eg. Sold goods to B
but wrongly debited to Ds account-Trial
balance will agree.
Compensating Error: When one error is
compensated by another error e.g.
Discount allowed P 100 not debited to
discount allowed account where as intrest
received P100 but not credited to intrest
account-trail balance will agree
HINTS FOR PREPARATION OF
TRAIL BALANCE:
Debit Side = Assets + Expenses +
debtors.

Credit Side =Liabilities + Income +

Creditors.
SUSPENSE ACCOUNT
(DIFFERENCE IN BOOKS OF
ACCOUNT):
If the agreement of trail balance is not matched
due to the existence of some error or errors in the
books of account, the difference is transferred to
the suspense account. When the error or errors
are found out and rectified the suspense
account is to be closed
ERRORS AND THE TRIAL BALANCE
The trial balance may some times not
balance because of:
Incorrect additions in any account

Making an entry on only one side of the

accounts
Entering a different amount on the debit
side from the amount on the credit side.
 SUSPENSE ACCOUNTS
Suspense account is used to balance a trial
balance. It is a temporary account where the
difference is held until errors are located and
corrected.
If the errors are not found before the financial
statements are prepared, the suspense
account balance will be included in the
balance sheet.
If the difference in the suspense account is
not material then the error can be written off,
unless there are suspicious circumstances.
METHODS OF RECTIFYING
ERRORS:

1. Rectifying by scoring out the wrong

figure.
2. Rectifying entries
a) single-sided errors
(those errors that affect only one account)
b) Double-sided errors
(errors that affect two accounts in the same
period)
METHODS OF RECTIFYING ERRORS
Method for single-sided errors:
By passing the omitted entry

o Method for Duble-sided errors:

If an account has been debited by mistake, it
should be credited while rectifying
If an account has been credited by mistake, it
should be debited while rectifying
 EXAMPLE
The debit side of the trial balance is being a
shortage by P177 from the credit side on 31 Dec
2010. A suspense account is open to rectified
errors.
The following errors were found on 25 feb 2011
A cheque of P150 paid to L Kent had been
correctly entered in bank account, but not
entered in Kents account
The purchase a/c had been undercast by P20

A cheque of P93 received from K Sand had been

correctly entered in bank book, but had not been
entered in sands A/c
The sales account overcast by P 100
 Suspense account
1Jan P 2011 P
2011 Balance b/d 177 25 L Kent 150
Feb
20
25 Purchase
25 Feb K sand 93 Feb

L Kent 25 sales 100

Feb
270 270

L Kent
25 Feb suspense 150
 Purchase A/c

25 Feb suspense 20

Sales A/c
25 Feb suspense 100

K Sand A/c

25 Feb suspense 93
END OF CHAPTER