Trial Balance- Accounting and Finance for Bankers JAIIB

Trial Balance- Accounting and Finance for Bankers JAIIB
  • Accounting can be defined as, “a systematic process of identifying, recording, measuring, classifying, verifying, summarising, preparing, interpreting and communicating financial information”. Accounting is based on the premise of ‘double-entry system’ - which means that for every debit there has to be a corresponding credit. In the above definition, the process of classifying, verifying, summarising takes place through the Trial Balance.
  • Trial Balance can be said to be like a summary sheet and not a financial statement- all accounts with their respective closing balances at the year-end under one roof, transported directly from the ledger. Thus, if all the steps prior to the preparation of trial balance are accurate, it will result in a perfect trial balance - the total of debits will match the total of credits.
A format of trial balance will look as under:

Trial Balance of ……… as on March 31, 20XX

Account Heads Ledger Folio Debits (Amount in Rs) Credits (Amount in Rs)
-- -- -- --
Total XXXXXXXXXXX XXXXXXXXXXX
  • While this is generally prepared at the end of the accounting year, it may also be prepared on regular intervals - like weekly, monthly, quarterly and half-yearly, as per the requirements from time to time.
(Note: Ledger Folio - this column was of relevance when there was a manual system of accounts. Each account head was listed under a particular page number in the ledger book. The ledger folio helps the accountant to directly visit that account rather than shuffling through the whole book)

Objectives

  • Arithmetical Accuracy of Ledger Accounts
  • Assistance in locating errors
  • Help in preparation of final accounts
  • Important to Auditors
Example: We are presented with the following accounting transactions of Ms Anees. We are hereby required to prepare the Trial Balance.
On April 01, 2016 Anees started a business with Rs. 100,000 and other transactions for the month are:
2. Purchase Furniture for Cash Rs. 7,000.
8. Purchase Goods for Cash Rs. 2,000 and for Credit Rs. 1,000 from Khalid Retail Store.
14. Sold Goods to Khan Brothers Rs. 12,000 and Cash Sales Rs. 5,000.
18. Owner withdrew of worth Rs. 2,000 for personal use.
22. Paid Khalid Retail Store Rs. 500.
26. Received Rs. 10,000 from Khan Brothers.
30. Paid Salaries Expense Rs. 2,000

In the books of Ms Anees
Journal

Date
(April’19)
Particulars Ref. No Debit (Amount) Credit (Amount)
1 Cash A/c …………………...Dr.
To, Capital A/c
100000 100000
2 Furniture A/c………………..Dr.
To, Cash A/c
7000 7000
8 Purchases A/c……………….Dr.
To, Cash A/c
To, Khalid Retail Store
3000 2000
1000
14 Cash A/c…………………...Dr.
Khan Brother’s A/c………..Dr.
To, Sales A/c
5000
12000
17000
18 Drawings A/c……………...Dr.
To, Cash A/c
2000 2000
22 Khalid Retail Store A/c……...Dr.
To, Cash A/c
500 500
26 Cash A/c…………………..Dr.
To, Khan Brothers A/c
10000 10000
30 Salaries A/c………………..Dr.
To, Cash A/c
2000 2000

Ledger Accounts

Cash Account

Particulars Amount (Dr) Particulars Amount
(Cr)
To, capital 100000 By, Furniture 7000
To, Sales 5000 By, Purchases 2000
To, Khan 10000 By, drawings 2000
 --  -- By, Khalid 500
 --  -- By, Salaries 2000
 --  -- By, bal c/d 101500

Khan Brothers Account

Particulars Amount (Dr) Particulars Amount
(Cr)
To, Sales 12000 By, Cash 10000
 --  -- By, bal c/d 2000

Khalid Retail Account

Particulars Amount (Dr) Particulars Amount
(Cr)
To, Cash 500 By, Purchases 1000
To, bal c/d 500  --  --

Furniture Account

Particulars Amount (Dr) Particulars Amount
(Cr)
To, Cash 7000 By, bal c/d 7000
 --  --  --  --

Drawings Account

Particulars Amount (Dr) Particulars Amount
(Cr)
To, Cash 2000 By, bal c/d 2000
 --  --  --  --

Purchases Account

Particulars Amount (Dr) Particulars Amount
(Cr)
To, Cash 2000 By, Bal c/d 3000
To, Khalid 1000  --  --

Salaries Account

Particulars Amount (Dr) Particulars Amount
(Cr)
To, Cash 2000 By, bal c/d 2000
 --  --  --  --

Sales Account

Particulars Amount (Dr) Particulars Amount
(Cr)
To, bal c/d 17000 By, Cash 5000
 --  -- By, Khan 12000

Capital Account

Particulars Amount (Dr) Particulars Amount
(Cr)
To, bal c/d 100000 By, Cash 100000

Type 1 Trial Balance: Trial Balance with Balances

  • Here the trial balances are prepared with the closing balances of each ledger account. The debit balances of asset and expense accounts are recorded on the debit side of trial balance while the credit balances of liabilities and incomes are recorded on the credit side of trial balance. This is the most commonly used.

Trial Balance

Heads of Account Amount (Dr) Amount (Cr)
Cash 115000 13500
Capital  -- 100000
Purchases 3000  --
Sales  -- 17000
Khan Brothers 12000 10000
Khalid Retail 500 1000
Salaries 2000  --
Drawings 2000  --
Furniture 7000  --
Total 117500 117500

Type 2 Trial Balance: Trial Balance with Total Balances

  • The trial balance is prepared by taking the total of each side of the accounts without balancing the accounts. This method of preparing a trial balance is not commonly used because it cannot help in the preparation of Financial Statement.
Heads of Account Total (Dr.) Total (Cr.)
Cash 101500  --
Capital  -- 100000
Purchases 3000  --
Sales  -- 17000
Khan Brothers 2000  --
Khalid Retail  -- 500
Salaries 2000  --
Drawings 2000  --
Furniture 7000  --
Total 141500 141500

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