Chapter Notes - Ledger and Trial Balance - Accountancy, Class 11 | EduRev Notes

TRIAL BALANCE

LEARNING OBJECTIVES

After studying this chapter Students will be able to tell:

Trial Balance - Meaning, objectives and Preparation.

TRIAL BALANCE

I. Meaning: When posting of all the transactions into the Ledger is completed and accounts are balanced off, then the balance of each account is put on a list called Trial Balance.
II. Definition: Trial Balance is the list of debit and credit balances taken out from ledger. It also includes the balances of Cash and bank taken from the Cash Book.
III. Preparation: Steps (Only Balance Method)

(1) Ledger A/cs which shows a debit balance is put on the Debit side of the trial balance.

(2) The A/c Showing credit balance is put on the Credit side of Trial Balance.

(3) Accounts which shows no balance i.e. whose Debit and Credit totals are equal are not entered in Trial Balance.

(4) Then the two sides of the Trial Balance are totalled. If they are equal it is assumed that there is no arithmetical error in the posting and balancing of Ledger A/cs.

Objectives or Functions of Trial Balance

• It helps in ascertaining the arithmetic accuracy of ledger accounts.
• Helps in locating errors.
• Provides the summary of Ledger A/cs.
• Helps in the preparation of Final A/cs.

Recording in the journal and Subsidiary Books, Posting into the Ledger and Preparation of Trial Balance can be clearly understood with the help of the example given on next pages.

Problem : Enter the following transactions in proper Subsidiary Books, post them into Ledger Accounts, balance the accounts and prepare a Trial Balance, 2015.

Jun.1 Assets: Cash in hand Rs. 50.000; Debtors: Amit and Co. Rs. 15,000, Sumit Bros, Rs. 30.000; Stock Rs. 1.75,000, Machinery Rs. 1,20,000, Furniture Rs.40,000.

Liabilities: Bank overdraft Rs. 33,000. Creditors: Virat and Co. Rs. 24,000, Vishal Rs. 16.000.
Jun. 2 Purchased from Ramesh and Sons goods of the list price of Rs. 20,000 at 10% trade discount.
Jun. 5. Returned to Ramesh & Sons goods of the list price of Rs. 2,000.
Jun. 10 Issued a cheque to Ramesh and Sons in full settlement of their account.
Jun. 12 Sold to Amit and Co., goods worth Rs. 25,000.
Jun. 15 Received cash Rs. 10,000 and cheque for Rs. 8,000 from Amit and Co. The cheque was immediately deposited into the bank.
Jun. 16 Withdraw for personal use cash Rs. 5,000 and goods for Rs. 3,000.
Jun. 19 Sold to Mohit Bros., goods for Rs. 16,000.
Jun. 20 Cash purchases Rs. 15,000.
Jun. 22 Withdrawf rom bank for office use Rs. 10,000.
Jun. 23 Purchased from Vishal goods valued Rs. 24,000.
Jun. 24 Amit and Co. returned goods worth Rs. 2,000.
Jun. 25 Received from Mohit Bros. Rs. 10.000.
Jun. 27 Paid by cheque. Rent Rs. 2,800.
Jun. 27 Received Commission in Cash Rs. 800.
Jun. 30 Paid salaries Rs. 5,000.

Cash Book (with cash and Bank Columns)

Note: 1. Entries marked with *will not be posted anywhere in the ledger.

2. Closing Balances of Cash and Bank will be shown in the Trial Balance.

3. All other A/cs shown in the Debit side will be credited & All other A/cs shown in the Credit side will be debited.

Purchase Book

Sales Book

Sales Return Book

Purchase Return Book

Posting of opening Entries:

1. First of all opening Journal Entry is done in the Journal proper.

2. All Assets A/cs are Debited and Liabilities A/cs are Credited. Difference between the totals of the two sides is the Capital.

Important: Besides opening Journal entries, any transaction which is not covered under any of the Subsidiary Book is recorded in Journal proper.

Journal Proper

Ledger Accounts Amit & Co.

Sumit & Co.

Stock Account

Machinery Account

Furniture Account

Virat & Co.

Balance on June 30th is Nill in this A/c (Virat & Co.)

   Dr.                               Vishal’sA/C                               Cr.

Capital Account

Drawing Account

Ramesh & Sons

Purchase Account

Mohit Brothers

Rent Account

Commission Account

Salaries Account

Sales Account

Sales Return Account

Purchase Return Account

Trial Balance As on 30th June, 2011

Suspense Account: When Trial Balance Does not agree, then first of all we try to locate the errors. Sometimes, in spite of the best efforts, all the errors are not located and the Trial Balance does not tally. Then in order to avoid delay in the preparation of final accounts, a new account is opened which is known as "Suspense Account." Difference in Trial Balance is posted to this Account.

1. If there is Excess Debit in the Trial Balance → Difference is posted to the Credit side of Suspense A/c

2. If there is Excess Credit in the Trial Balance → Difference is posted to the Debit side of Suspense A/c

Example:
 Trial Balance

Closing of Suspense A/c 

• The errors which led to the difference still remains to have to be located.
• These errors will be rectified through Suspense A/c (One sided errors) which will be explained in the topic Rectification of Errors.
• When all the errors are rectified, this Account closes down automatically. If the difference in Trial Balance persist, it is shown in the Balance Sheet.
  (a) Debit Balance of Suspense Account is shown in the Asset Side of the Balance Sheet.
  (b) Credit Balance of Suspense Account is shown in the Liability Side of the Balance Sheet.

Question for Practice 

The following trial balance has been prepared by an inexperienced accountant. Redraft it in the correct form:-