Trial Balance | Explanation | Methods | Examples

Trial Balance Feature Image

Trial Balance : 

Trial Balance shows the total closing balance amounts of all the ledger accounts for the specific period i.e. for a month, for a quarter, for a six month, 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 the Credit corresponding to every Debit. so, Total of trial balance always is equal if not then there is an error the in the posting of the transactions.

In a manual system of an accounting:-

An accountant needs to prepare the trial balance. He matched the Debit balance amounts with Credit balance amounts. If they agree it means that the trial balance has no error of omission, commission and etc.

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 an accounting:-

An accountant doesn’t need to prepare trial balances Because it will be prepared automatically by the accounting software(Like Tally, SAP, ZOHO, Marg, etc.)

Advantages of a Trial Balance

In the manual system:

  • With the help of it, we will ensure that all the amount of Debit has the corresponding amount of Credit.
  • It helps to identify the error of omission, commission and etc.
  • It proves the arithmetical accuracy of the accounting work done by the bookkeeper.

The following advantages are common in both the system: –

In the computerised system

  • It is also very useful for auditors, 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 finalize the financial statement for the year because it is the list of all debit and credit balances of leader 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 Debit and Credit side of all ledger accounts.

(Most popular, simple and best method)

2. Total Method In this Method, We take the total of both Debit and Credit side of all ledger accounts.
3. Compound Method This is the combination of above-said methods.

The following are 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
01/04/2018 Started Business with following assets
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 Stationary 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 these above transactions in the journal.

  • I have posted all the transaction in the journal but attached the file in PDF format because of the increase in the length of an article.

“Download all Journal entries in PDF Format”

and after that, we have to post all journal entries in the ledger accounts. its 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 the following: –

Summary of Ledger Balance  - Trial Balance | Explanation | Methods | Examples

Now we will prepare Trial Balances with all three methods: –

1. Balance Method : –

In balance method, we have to post all the Debit balance shown in the column of “Balances” in the above statement of ledger accounts in 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 balances.”

Trial Balance Solved with Balance Method  - Trial Balance | Explanation | Methods | Examples
Trial Balance – Solved with Balance Method

2. Total Method : –

In the Total method, we have to post all the total amount of Debit side of all ledger accounts shown in the column of “Debit Total” in the above statement of ledger accounts in trial balance column named “Debit Total” and the credit total in the column named “Credit Total”.Trial Balance Solved with Total Method  - Trial Balance | Explanation | Methods | Examples

Trial Balance – Solved with Total Method

3. Compound Method: –

The Compound method is the mixture of both the above-explained method or we can say that show both method on the single sheet. As shown below: –Trial Balance Solved with Compound Method  - Trial Balance | Explanation | Methods | Examples

Trial Balance – Solved with Compound Method

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