Topic 6: Trial Balance – Book Keeping Notes Form One New Syllabus
INTRODUCTION
the trial balance serves a critical role in accounting, offering accuracy checks, errors detection, and support for financial statements preparation.
The competencies developed will enable you to prepare the trial balance from a given list of general ledger balances, as well by processing transactions from the source documents up to extracting a trial balance.
CONCEPT OF A TRIAL BALANCE
The trial balance extraction is a fundamental phase in accounting and serves as an important step in the accounting cycle.
MEANING OF A TRIAL BALANCE:
TRIAL BALANCE:
is a list of balances extracted from general ledger accounts at a particular date.
TRIAL BALANCE:
is a snapshot or a picture of ledger accounts balances at a specific date.
TRIAL BALANCE:
is a statement that shows the list of debit and credit balances extracted from general ledger accounts.
TRAIL BALANCE:
Is a statement which shows a list of debit and credit balances of accounts extracted from the ledger to check the arithmetical accuracy of the double entry recording of business transactions at any given date.
TRIAL BALANCE
Also, can be defined as a list of account titles and their balances in the ledgers.
If the posting of the entry in the ledger accounts is done correctly, the total of debit balances and the total of credit balances must be equal in the trial balance.
ADVANTAGES OF A TRIAL BALANCE
A trial balance has the following advantages to an enterprise:
Used in the preparation of financial statements:
the list of debit and credit balances extracted from ledgers are used as input in the preparation of financial statements.
Helps to detect errors: since the entries in the general ledger account are posted following the double entry principle the trial balance should be balance at any point in time. Therefore, if the trial balance does not balance, it could mean the errors have been made in the posting process.
Checks the correctness of double entries made to the accounts: if entries made to ledger accounts were wrongly done, the trial balance will not balance. In this regard, the trial balance is used for checking the correctness of the double entries made to the accounts in the trial balance, balances from the general ledger accounts are listed systematically.
Helps the enterprise to keep its records systematically:
Checks whether computations of the ledger accounts balances were performed correctly: mistakes in the calculation will result into incorrect balances extracted from the ledger account, therefore the trial balance checks whether computations of the figures on the trial balance were performed correctly.
DISADVANTAGES OF A TRIAL BALANCE
Some errors cannot be detected in a Trial balance, and thus making it to be equal on both sides. e.g. error of omission, error of principle etc.
Trial balance depends on the double entry principle.
Preparation of A Trial Balance
A trial balance is prepared for debit and credit balances extracted from the general ledger accounts. When preparing the trial balance, two basic steps must be followed.
The first step:
involves identifying the debit and credit balances in the general ledger. Performing this step depends on the data available.
There is case where a list of the general ledger balances is given and there are cases where one is given transactions and has to process them (journalizing, posting to the general ledger, balancing the accounts and extracting the trial balance).
is the actual listing of the balances in the trial balance. This is done by listing the debit balances on the debit site of the trial balance and the credit balances on the credit side of the trial balance.
The second step:
The total of the credit balances should equal the total of debit balances. If the totals are equal, the trial balance will agree.
LAYOUT OF A TRIAL BALANCE TRIAL BALANCE AS AT …………
Important columns of the Trial balance:
1. Serial number (S/N) Column: This is the serial number of the account in a given ledger.
2. Details/Name of account column: This is the column that record names of the ledger accounts from which balances have been extracted.
3. Debit balances: is the column that records the debit balances extracted from general ledger accounts.
4. Credit balances: is the column that records the credit balances extracted from the general ledger accounts.
NOTE:
When preparing a trial balance;
i. All assets (both fixed and current) are recorded on the debit column of the trial balance. e.g. Machinery, Buildings, Debtors, stock etc.
ii. All liabilities (long term and current) are recorded under the credit column on the trial balance, e.g. Capital Loan from NBC, Creditors etc.
iii. All Expenses are recorded in the debit column of the trial balance. e.g. Transport, Insurance, Rent, Advertising, Water bill, etc.
iv. All income (revenue) is recorded in the credit column of the trial balances, e.g. Commission received; Rent received etc.
v. Closing stock/inventory, is not recorded in the trial balance; normally it is shown outside of the trial balance as additional information.
Example 1.
You are given the following list of balances extracted from the general ledger of Asam Traders at 30th November 2021, from which you are required to extract a trial balance.
Balances from Asam Traders General Ledger,
| Details | TZS |
| Sales
Purchases Rent and rates expenses Lighting and heating expenses Salaries and wages |
172,720,000
83,896,000 3,296,000 412,800 40,720,000 |
| Insurance expenses Building
Furniture Trade receivable Electricity expenses Trade payable Balance at bank Equipment Motor van Motor running expenses Capital Stock at 1st December 2020 Stock at 30th November 2021 Discount received |
1,608,000
67,360,000 864,000 24,672,000 326,400 11,984,000 11,160,000 20,000,000 11,680,000 3,278,400 83,400,000 1,169,600 978,550 2,339,200 |
The following this, the trial balance can be prepared by using the principle that identifies debit and credit balances as follows
ASAM TRADERS
TRIAL BALANCE AS AT 30TH NOVEMBER 2021
| Name of account | Debit
TZS |
Credit
TZS |
| Sales
Purchases Rent and rates expenses Lighting and heating expenses Salaries and wages Insurance expenses Building Furniture Trade receivable Electricity expenses Trade payable Balance at bank Equipment Motor van Motor running expenses Capital Stock at 1st December 2020 Stock at 30th November 2021 Discount received |
83,896,000
3,296,000 412,800 40,720,000 1,608,000 67,360,000 864,000 24,672,000 326,400 11,160,000 20,000,000 11,680,000 3,278,400 1,169,600 978,550 |
172,720,000
11,984,000 83,400,000 2,339,200 |
| Totals | 270,442,200 | 270,443,200 |
Example 2,
Record the following transaction in the general journal, ledger accounts of Jamal for January 2020, and then balance off the ledger accounts, and extract a trial balance as a 31st January 2020.
January 1. started business by deposing cash in the bank account TZS 13,500,000.
2. Purchased a business building from Kamala for TZS 7,500,000, paying TZS 5,000,000 Cheque and promising to pay the balance as early as possible next month.
4. Purchased office furniture by cheque from John TZS 250,000.
5. Purchased goods on credit from Madina TZS 500,000.
8. Jamal added in the business TZS 600,000 by cheque.
- Sold goods to Mahinda on credit worth TZS 120,000.
- Purchased goods on credit from ABC LTD worth TZS 240,000.
- Sold goods in cash worth TZS 130,000.
14. Returned goods to Madina worth TZS 150,000 because they were faulty.
15. Mahinda returned goods worth TZS 10,000.
18. Paid Madina TZS 350,000 by cheque.
20. Received cash from Mahinda worth TZS 80,000.
24. Paid wages in cash TZS 50,000.
26. Jamal drew TZS 200,000 from the business account for private use.
28. Received TZS 50,000 cash for rent.
31. Paid ABC LTD TZS 210,000 by cheque.
| DATE | DETAILS | Dr | Cr |
| 1-Jan-20 | Bank
Capital Being capital in the bank by the owner. |
13,500,000 | 13,500,000 |
| 2-Jan-20 | Building
Bank Other payable (Kamala) Being for a building acquired for TZS 7,500,000 with TZS 5,000,000 cheque issued |
7,500,000 | 5,000,000
2,500,000 |
| 4-Jan-20 | Furniture
Bank Being a cheque issued to buy furniture |
250,000 | 250,000 |
| 5-Jan-20 | Purchases
Trade payable Being goods purchased on credit |
500,000 | 500,000 |
| 8-Jan-20 | Bank Capital Being additional capital paid by cheque |
600,000 | 600,000 |
| 10-Jan-20 | Trade receivable
Sales Being goods sold on credit |
120,000 | 120,000 |
| 11-Jan-20 | Purchases
Trade payables Being goods purchased on credit |
240,000 | 240,000 |
| 12-Jan-20 | Cash
Sales Being goods sold in cash |
130,000 | 130,000 |
| 14-Jan-20 | Trade Payable
Purchases returns Being goods returned to suppliers |
150,000 | 150,000 |
| 15-Jan-20 | Sales returns
Trade receivables Being goods returned by customers |
10,000 | 10,000 |
| 18-Jan-20 | Trade payable
Bank Being cheque issued to pay creditors |
350,000 | 350,000 |
| 20-Jan-20 | Cash
Trade receivables Being receivables collected in cash |
80,000 | 80,000 |
| 24-Jan-20 | Wages
Cash Being wages paid in cash |
50,000 | 50,000 |
| 26-Jan-20 | Drawings
Bank Being cash withdrawn for personal use |
200,000 | 200,000 |
| 28-Jan-20 | Cash
Rent income Being rent income received in cash |
50,000 | 50,000 |
| 31-Jan-20 | Trade payable
Bank Being a cheque issued to pay creditors |
210,000 | 210,000 |
POSTING TRANSACTION TO THE LEDGERS