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Trial Balnce

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14 views

Trial Balnce

Uploaded by

rahinasiddikee123
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Trial balance

What is trial balance?


Trial Balance is a statement summarizing the closing balance of all the ledger accounts, prepared
with the view to verify the arithmetical accuracy of ledger posting. In Trial balance, all the ledger
balances are posted either on the debit side or credit side of the statement. The total of debit
balance in trial balance should match with a total of credit balance, only then it is said to be
arithmetically accurate. Trial balance is a primary source for preparing various financial
statements such as Trading and Profit & Loss account, Balance sheet etc.

What are the objectives of preparing trial balance?


As the name suggests, it’s a statement prepared to ensure that journal and ledger postings are
done correctly so that closing balances can be considered for preparing the final accounts and
other financial statements. Trial Balance acts as a pre-check before preparing the other financial
statements. The following are some of the important objectives of trial balance.

1. To check arithmetical accuracy of accounts


2. To help in locating errors
3. To provide summary of ledgers.
4. To help in preparation of final accounts.

What are the Importance of preparing trial balance?


What are the errors which disclose by trial balance?
1. Omission to post an item from subsidiary book to ledger account.
2. Posting an item to the wrong side of the correct ledger account
3. Posting an item to the wrong side of wrong ledger account
4. Posting an wrong amount to the correct ledger
5. Posting to the wrong amount to wrong ledger
6. Mistake in carrying forward the total of subsidiary accounts
7. Mistake in carrying forward from one page to another
8. Mistake in totaling of trial balance itself.

Errors does not disclose by trial balance

Though such errors occur in the books of accounts, the total of debit and credit balance will be
the same. The trial balance will tally. Errors of complete omission, error of principle,
compensating error, wrong entry in the subsidiary books are not disclosed by the trial balance.

There are some errors in preparing the trial balance which does not affect the equality of debits and credits
of the trial balance but violates its objective of checking the accuracy of the accounts. These are errors
that remain undetected in spite of the agreement of a trial balance.
Error of principle – When the fundamental principle of accounting is violated while preparing the
accounts, this is known as error of principle. These errors are made when there’s no proper distinction
between capital and revenue items i.e., capital expenditure being treated as revenue expenditure and vice
versa.
Compensating errors – Compensating errors is when the effect of one error is neutralized by some other
errors. For example, if Ram’s account is debited with 500 instead of 5000 and on the other hand
Shyam’s account is debited with 5000 instead of 500. This situation would not have any effect on the
trial balance .
Error of complete omission – If a transaction is completely omitted or not recorded in the journal or any
subsidiary books, it is termed as error of omission. Such error will not effect the trial balance as it is not
recorded on the debit side of an account nor on the credit side of another account.

Practice
1. he following transactions are given to you relating to ABC TRDING
a. Started business with capital of Rs. 2,00,000 by depositing into bank
b. Purchase goods of Rs. 50,000
c. Purchase good on credit of Rs.20,000
d. Withdrawn from bank of Rs. 50,000
e. Withdrawn goods for personal use of Rs. 13,000
f. Commission paid by Cheque Rs.20,000
g. Sold goods to Raman of Rs.5,00,000, paid cash Rs.4,60,000 only.
h. Salary paid by cheque of Rs. 12,000 and salary outstanding of Rs. 3,000
i. Wages paid to Ram Rs.8,000
j. Received From Raman in full settlement of his account Rs.38,000
k. Machinery purchase for Rs. 30,000
l. Depreciation charge on machinery Rs.5,000
Require: journal, ledger and trial balance and worksheet
2. Prepared the trial balance from the following information
a. Service revenue received Rs. 50,000
b. Salary exp paid Rs. 15,000
c. Advertising exp paid Rs.3,500
d. Interest exp paid Rs. 2,400 and payable Rs. 1,600
e. Insurance exp paid Rs. 3,000 and payable Rs. 1,000
f. Purchase of equipment Rs. 50,000
g. Deprecation of Rs. 6,000
h. Rent exp Rs. 4,500 and advance rent 2,000 paid
i. Supplies exp. 5,200
j. Printing and stationary Rs. 3,800
k. Other exp paid Rs. 4,200

3. Prepared the trial balance from the following information


l. Service revenue received Rs. 20,000
m. Salary exp paid Rs. 5,000
n. Advertising exp paid Rs.3,500
o. Interest exp paid Rs. 2,000 and payable Rs. 600
p. Insurance exp paid Rs. 3,000 and payable Rs. 1,00
q. Deprecation of Rs. 2,000
r. Rent exp Rs. 1,500
s. Supplies exp. 1,200
t. Printing and stationary Rs. 800
u. Other exp paid Rs. 400
4. Prepared the adjusted trail balance (Ref. question no. 2 )
 Earned service revenue Rs. 4,000
 Salary due Rs. 800
 Stationary on hand the end Rs.600
 40% prepaid rent expired at the end.
 Other exp payable Rs. 1,000 at end
5. Prepared the adjusted trail balance (Ref. question no. 3 )
 Earned service revenue includes unearned service revenue Rs. 400
 Salary prepaid Rs.1,200
 Stationary on hand the end Rs.100
 Outstanding rent Rs. 150
 Other exp payable Rs. 500 at end
6. Prepared income statement from the following information
Service revenue Rs. 40,000
Salaries exp. Rs.7,000
Rent exp. Rs. 3,000
Interest exp. Rs. 2,000
Other revenue Rs. 1,500
Insurance exp. Rs. 4,000
Supplies exp. Rs. 12,000
Depreciation Rs. 3,500
Salaries and wages Rs. 2,500
7. Prepared income statement from the following information
Service revenue Rs. 30,000
Salaries exp. Rs.5,000
Rent exp. Rs. 2,000
Interest exp. Rs. 1,000
Other revenue Rs. 500
Insurance exp. Rs. 2,000
Supplies exp. Rs. 7,000
Depreciation Rs. 2,500
Salaries and wages Rs. 2,500

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