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Trial Balance

Trial Balance Assignment / Homework Help
Preparation of trial balance is the third step in the accounting process, the first two steps being recording the transactions in the books of original entry and posting them to ledger accounts. After posting the transactions in the ledger, a statement is prepared to show separately the debit and credit balances in the ledger accounts. This statement is known as the trial balance. It is merely a summary or listing of all general ledger balances that are outstanding on a particular date. The ledger balances may contain a debit balance or a credit balance. It must be noted that a trial balance is always prepared as on a particular date.

The basic objective of preparing a trial balance is to confirm or check the arithmetical accuracy of the ledger balances. Since in the double entry system of accounting, the total of amount on the debit side must equal the total of amount on the credit side, a listing of the balances would confirm this accuracy. An agreed trial balance forms the basis of preparation of financial statements. Preparation of financial statements, therefore, is another objective of trial balance.

It must be noted that agreement of trial balance is not a conclusive proof of the accuracy and there may still be errors in the accounts. The errors may be of following types:
  • A transaction has not been entered at all in the accounting records. (Error of omission)
  • A wrong amount has been written in both columns of the journal. (Error of original entry)
  • A wrong account has been mentioned in the journal. (Error of principle)

Rules of preparing trial balance:
  • The balances of all i) assets accounts ii) expenses accounts iii) losses iv) cash and bank balances are placed in the debit column of the trial balance
  • The balances of all i) liabilities accounts ii) income accounts iii) profits iv) capital are placed in the credit column of the trial balance

The form of trial balance is shown below:

As at ... ... ...

S. No. Ledger Accounts L.F Debit amount Credit amount

Most of the above heads are self explanatory. "L.F" indicates "Ledger Folio" where in the page number of the particular ledger account in the general ledger book is recorded.

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