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Week 2 - Trail Balance

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6 views

Week 2 - Trail Balance

Uploaded by

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

ACC 101
1 Course Module
2

Topic 2.1
Trail Balance
WEEK 2
Learning Objectives
Students should be
able to: 1 Prepare a trial balance from a set of accounts

Explain why the debit and credit trial balance totals should equal
2 one another

Explain why some of the possible errors that can be made when
3 double entries are being entered in the accounts do not prevent the
Trial balance from ‘balancing’

Describe uses for a trial balance other than to check for


4 double entry errors
Total debit entries = Total credit entries

You’ve learnt that under double entry bookkeeping


4
for each debit entry there is a credit entry
for each credit entry there is a debit entry.

Total debit balances = Total credit balances


Question
What is the double entry for each of the following transactions:

(a) Purchase of a new van for £9,000 which was paid in full by
cheque
Dr £
5 Cr £
(b) Goods which cost £40 taken out by the owner for her own use
Dr £
Cr £
Answer
(a) Purchase of a new van for £9,000 which was paid in full by cheque
Dr Van a/c £ 9,000
Cr Bank a/c £ 9,000

(b) Goods which cost £40 taken out by the owner for her own use
Dr Drawings a/c £ 40
Cr Purchase a/c £ 40

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Accounting Rules
All the items recorded in all the accounts on the debit side
should equal in total all the items recorded on the credit side
of the accounts.

So, we need to check that for each debit entry there is also
an equal credit entry.

7
Trail Balance
8
In order to check that there is a matching credit entry for every debit
entry, we prepare something called a Trial Balance.

At suitable intervals, the entries in each ledger account are totalled and
a balance is struck. Balances are usually collected in a trial balance
which is then used as a basis for preparing a statement of profit
or loss and a statement of financial position.

A trial balance can be used to test the accuracy of the double entry
accounting records. It works by listing the balances on ledger
accounts, some of which are debits and some credits. Total debits
should equal total credits.
Trail Balance
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A type of trial balance could be drawn up by listing all the accounts and
then entering the total of all the debit entries in each account in one
column and the total of all the credit entries in each account into another
column.

Finally, you would add up the two columns of figures and


ensure they are equal.
Example of Trail Balance

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What if the trial balance shows
unequal debit and credit balances?
If the two columns of the list are not equal, there must be an error in recording the
transactions in the accounts.

A list of account balances, however, will not disclose the following types of errors.

(a) The complete omission of a transaction, because neither a debit nor a credit is made
(b) The posting of a debit or credit to the correct side of the ledger, but to a wrong account
(c) Compensating errors (eg an error of $100 is exactly cancelled by another $100 error
elsewhere)
(d) Errors of principle (eg cash from receivables being debited to trade accounts receivable
and credited to cash at bank instead of the other way round)

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Errors in Trail Balance
The trial balance should reveal errors where the rules of double
entry have been broken, such as:
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(a) One-sided entries

(b) Where an entry has been posted as a credit to one account


and a credit to a second account and no debit entry has
been made (or two debits and no credits)
Thank you
Now let’s do some questions!!!

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