Chapter 6:The Trial Balance

Introduction

 It is a list of all ledger balances at the end of a particular period.

 It is not part of the double entry system.
 The main purpose of preparing the trial balance is to check the
arithmetical accuracy of the ledger clerks involved in the preparation of
various ledgers.

Purposes of the trial balance

i. The trial balance is mainly used to check the arithmetical accuracy
of the double entry bookkeeping.
ii. The trial balance is used in the preparation of the financial statement
iii. It is also used to detect errors if it fails to balance.

Procedures for preparing a trial balance

 All accounts with a debit balance are entered on the debit side of the trial
balance and all accounts with credit balance are entered on the credit side
of the trial balance and add all figures on each side, the total should be the
same.
DR CR
Equity (Capital) xxx
Revenue (Sales) xxx
Purchases xxx
Drawings xxx
All expenses xxx
All Assets xxx
All liabilities xxx
Returns outwards/purchases returns xxx
All Income xxx
Sales returns xxx
All provisions xxx

 Sometimes in an examination, students are required to prepare a trial

balance from a list of mixed up ledger balances.
 For the student to prepare such a trial balance, he/she must understand the
type of accounts that should be credited and those that should be debited.
 The following is a summary of items that are debited and those that are
 credited.

Example 1
From the following list of ledger balances, you are required to prepare the trial
balance of B. Brown as at 31 December 2011.
Capital 500000
Land and buildings 150000
Purchases 200000
Sales 350000
Rent 55000
Salaries 100000
Electricity 25000
Motor vehicles 120000
Carriage inwards 15000
Carriage outwards 23000
Sales returns/returns inwards 4500
Purchases returns/returns outwards 4000
Cash at bank 137500
Trade receivables 26000
Trade payables 16000
Drawings 14000

Solution
DR CR
Capital 500000
Land and buildings 150000
Purchases 200000
Sales 350000
Rent 55000
Salaries 100000
Electricity 25000
Motor vehicles 120000
Carriage inwards 15000
Carriage outwards 23000
Sales returns/returns inwards 4500
Purchases returns/returns outwards 4000
Cash at bank 137500
Trade receivables 26000
Trade payables 16000
Drawings 14000
870000 870000
Errors that affect the trial balance
1. Arithmetical error within the trial balance
2. Arithmetical error within one of the ledger accounts
3. Completing double entry with different amounts
4. Making single entry rather than double entry
5. entering a transaction twice on the same side of the ledger (i.e debiting
twice or crediting twice)

Errors that do not affect the trial balance

 These are errors which do not affect the agreement of the trial balance
that is even if they are made the trial balance will still balance.

1. Error of omission
 It occurs when a transaction has not been recorded in the books of
accounts.
 The entry will not be in the ledger thus it will not also be in the trial
balance.
 For example a sale on credit of $4 000 to a customer is completely
omitted from the books of accounts.
 Both the sales account and the trade receivables’ account will be falling
short by $4 000.

2. Error of principle
This occurs as a result of failure to distinguish between the classes of the
accounts. Examples of the errors of principle
(a) The purchase of a non-current asset recorded as purchases
(b) Income is credited to a liability account in error (or vice versa).
(c) Repairs to machine recorded machinery account.

3. Error of commission
 It occurs when an entry has been recorded correctly but in a wrong
person’s account.
 For example cheque received from M. Moyo a debtor is credited to C.
Moyo.

4. Error of original entry

 It occurs when the figure on the source document is not the same as that
recorded in the books of accounts.
 For example sales on credit of $400 recorded as $4000 both in the
individual account in the sales ledger and in the sales account

5. Complete reversal of entries

 It occurs when an entry has been recorded on the wrong side in the
subsidiary book, but posted correctly to the ledger.
 It applies when the double entry system has not been followed, that is, the
 account that should have been debited is credited and vice versa e.g. a
cheque payment to H. Mutero is debited to Bank and credited to Mutero’s
Account in error.

6. Compensating errors
 This is when two or more errors cancel each other out e.g. wages is
overcast by $200 and telephone under cast by $200 or sales under cast by
$500 and purchases under cast by $500.
 These errors will cancel each other so that the trial balance will still
balance.
7. Transposition errors
 This occurs when the digits of a figure has been interchanged.
 Thus the figure on the document will be different from the one in the
books of accounts.
 For example purchases on credit of $491 recorded as $419 both in the
individual account in the purchases ledger and in the purchases account.

Practice Questions
1. State the type of error in the following:
(a) A sale of goods to B. Bonzo for $900 was entered in Bosso.
(b) The purchase of Machinery for $2 000 was entered in the Machinery repairs
account.
(c) A purchase of goods on credit from Nyore Nyore for $690 was entered in the
books as $960.
(d) A payment by cheque to M. Moyo for $15 000 was debited to the bank
account and credited in Moyo’s account.
(e) The interest earned account was under cast by $200 and also the interest
payable account was under cast by the same amount.
(f) A return of goods previously bought on credit from Nyore Nyore was
completely omitted from the books.

2. (a) State any 4 errors that are not revealed by a Trial Balance.
(b) Give 2 errors affecting the agreement of a Trial Balance.
(c) State one purpose of preparing a trial balance.
(d) The following trial balance at 30 April 1997 has some errors.
DR CR
Capital 20000
Drawings 2000
Sales 60525
Purchases 29900
Stock 1 May 1996 8750
Stock 30 April 1997 7300
Administration expenses 15017
Discount Allowed 1100
Discount Received 930
Equipment 25000
Cash in hand 200
Bank overdraft 1760
Trade debtors 3588
Provision for doubtful debts 140
Trade creditors 2200
Suspense 4520
Total 91465 91465

REQUIRED:
Re – write the Trial Balance to correct the errors.

Solution
DR CR
Capital 20000
Drawings 2000
Sales 60525
Purchases 29900
Stock 1 May 1996 8750
Administration expenses 15017
Discount Allowed 1100
Discount Received 930
Equipment 25000
Cash in hand 200
Bank overdraft 1760
Trade debtors 3588
Provision for doubtful debts 140
Trade creditors 2200
85555 85555