Today, we are covering the slightly easier and less conceptual topic of the trial balance. It is just a posting of balances from the ledger into it. We will learn the meaning of a trial balance, its advantages, and methods, and to understand it in many better ways, we will solve an example with all the methods. After reading this article, you can prepare and check the trial balance of any business.
What is a Trial Balance?
It shows the total closing balanced amounts of all the ledger accounts for the specific period, i.e. for a month, for a quarter, for six months, and for a whole year. It is the end of the accounting process. In the double-entry accounting system, there is always the same amount of Credit corresponding to every Debit. So, the Total trial balance is equal; if not, then there is an error in the posting of the transactions.
In a manual system of accounting:-
An accountant needs to prepare the trial balance. He matched the Debit balance amounts with the credit balance amounts. If they agree, it means that it has no error of omission, commission, etc. We will discuss the meaning of all these errors in a separate upcoming article.
Note: –
- Debit balance amounts mean that amounts which are listed in a column with the heading “Debit balances”.
- Credit balance amounts mean that amounts which are listed in a column with the heading “Credit balances”.
- We will explain the topic of errors in next upcoming articles.
Nowadays, in the computerised system of accounting:-
An accountant doesn’t need to prepare a trial balance because it will be prepared automatically by the accounting software (Like Tally, SAP, ZOHO, Marg, etc.). An accountant just has to post all business transactions in the subsidiary books of accounting, i.e. Cash Book, Purchase Book, Sales Book, Purchase Return Book, Sales Return Book, and last is Journal Proper.
Advantages of a Trial Balance
In the manual system:
- With the help, we will ensure that all the amount of Debit has the corresponding amounts of Credit.
- It helps to identify the errors of omission, commission, etc.
- It proves the arithmetical accuracy of the accounting work done by the bookkeeper.
The following advantages are common in both systems: –
In the computerised system
- It is also very useful for auditors, as they will get the general ledger account balances prior to their proposed adjustments and after their proposed adjustments.
- The trial balance helps the accountant to prepare and finalise the financial statement for the year because it is the list of all debit and credit balances of ledger accounts.
Method of Trial Balance:
The following are the three methods of Trial Balance: –
| 1. Balance Method | In this Method, We take the Balance of the Debit and Credit sides of all ledger accounts.(Most popular, simple and best method) |
| 2. Total Method | In this Method, We take the total of both the Debit and Credit sides of all ledger accounts. |
| 3. Compound Method | This is a combination of the above-said methods. |
The examples of all methods of the Trial Balance: –
We are taking a single example, and then we will prepare a trial balance with all the above-said three methods: –
Example 1: –
Prepare a trial balance of A&B co. as on 30/04/18 with all three methods.
| Date | Transaction | Amount |
| Cash | 20,000 | |
| Bank | 100,000 | |
| Land and Building | 2,000,000 | |
| Furniture and fixture | 230,000 | |
| Office Equipment | 150,000 | |
| 05/04/2018 | Purchase goods from M/s Ram and Sons. | 250,000 |
| 05/04/2018 | Paid Freight by cash | 5,000 |
| 07/04/2018 | Paid for Stationery Items | 2,000 |
| 09/04/2018 | Sold goods to Mr. Parvesh Kumar | 85,000 |
| 12/04/2018 | Paid to M/s Ram and Sons by cheque | 150,000 |
| 15/04/2018 | Purchase goods from M/s Ram and Sons. | 200,000 |
| 15/04/2018 | Paid Freight by cash | 3,000 |
| 18/04/2018 | Sold goods to Miss. Deepika and payment received by cheque | 125,000 |
| 21/04/2018 | Payment received from Mr. Parvesh Kumar by cheque | 85,000 |
| 25/04/2018 | Sold goods to M/s A&B Co. | 135,000 |
| 28/04/2018 | Sold Goods to M/s X&Y Co. | 150,000 |
“Download Example in PDF format”
Solutions: –
First of all, we have to post all the above transactions in the journal.
- I have posted all the transactions in the journal, but attached the file in PDF format because of the increase in the length of the article.
“Download all Journal entries in PDF Format”
And after that, we have to post all journal entries in the ledger accounts. It’s also attached.
“Download all Ledger accounts in PDF format”
After taking the above steps, we got a statement of ledger accounts, including the total of the debit side, the total of the credit side and balances shown as follows: –
Now we will prepare Trial Balances with all three methods: –
1. Balance Method: –
In the balance method, we have to post all the Debit balances shown in the column of “Balances” in the above statement of ledger accounts in the trial balance column named “Debit Balances” and the credit balance in the column named “Credit Balances”.
“Important Note: – Trial balance always has equal total in both the column named debit Balance and credit balance.”
2. Total Method: –
In the Total method, we have to post all the total amounts of the debit side of all ledger accounts shown in the column of “Debit Total” in the above statement of ledger accounts in the trial balance column named “Debit Total” and the credit total in the column named “Credit Total”.
Trial Balance – Solved with Total Method
3. Compound Method: –
The Compound method is the mixture of both the above-explained methods, or we can say that shows both methods on a single sheet. As shown below: –
Trial Balance – Solved with Compound Method
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