Methods of preparing trial balance
A trial balance can be prepared in the following
methods:
In this
method, the balance of every ledger account either debit or credit, as the case
may be, is recorded in the trial balance against the respective accounts. The
balance method is widely used, as it helps in the preparation of financial
statements.
Under this
method, the total amounts on the debit side of the ledger accounts and the
total amounts on the credit side of the ledger accounts are ascertained and
recorded in the trial balance. This method is not commonly used as it cannot
help in the preparation of financial statements.
This method
is a combination of both total method and balance method. Under this method,
four columns are provided, namely, a) totals of debit side of the ledger
accounts, totals of the credit side of the
ledger accounts c) debit balances of ledger accounts and credit balances of the ledger accounts. This method
is not in practice.
Following are
the steps to be followed to prepare trial balance under this method:
Step 1: Calculate the
balances of all ledger accounts including the cash book.
Step 2: Record the
names of the accounts in the particulars column and the amounts of debit balances
in the debit column and credit balances in the credit column.
Step 3: Enter the
page number of ledger from which the balance is taken in the Ledger Folio column.
Step 4: Total the
debit and credit columns. It must be equal. If not equal, locate the errors and make
the trial balance agree.
Trial balance is prepared in the following format
under the balance method:
Tutorial note
i. If the
value of closing stock is known on the day when trial balance is prepared, then
opening stock and closing stock are adjusted with purchases. Hence, opening
stock will not appear in the trial balance. Closing stock and adjusted
purchases will appear in the trial balance. If the value of closing stock is
not known then opening stock and purchases will appear in the trial balance.
Thus, either opening stock and purchases or closing stock and adjusted
purchases will appear in the trial balance.
ii. Under balance method, if an account does not
have a balance, it is excluded.
Tutorial note
There are certain accounts which have only debit
balances. Similarly, certain accounts have only credit balances. The following
chart gives examples of such accounts:
For example, the following transactions took place
in the business of Rathna Kumar, who deals in textiles.
2017
January Rs.
1 Commenced business with capital 5,00,000
5 Bought furniture for cash 6,000
10 Purchased goods for cash 10,000
15 Bought goods on credit from Jeyanthi 25,000
18 Returned goods to Jeyanthi 2,500
20 Sold goods for cash 32,000
25 Sold goods to Elizabeth on credit 72,000
30 Paid salaries to Krishnan by cash 7,000
31 Received commission from Kumar by cash 2,800
31 Received cash from Elizabeth 22,000
The journal entries, ledger postings and trial
balance for the transactions will appear as below in the books of Rathna Kumar.
In the
books of Rathna Kumar
Steps to be
followed to prepare trial balance under total method are given below:
Step 1: Calculate the
totals of debit side and credit side of all the ledger accounts including cash
book individually.
Step 2: Enter the
name of the account in the particulars column and enter the debit total in the debit
column and credit total in the credit column for each account separately.
Step 3: Enter the
page number of ledger from which the balance is taken in the Ledger Folio column.
Step 4: Find the sum
of the debit total and credit total columns. It must be equal. If not equal, locate
the errors and make the trial balance agree.
For the above example, trial balance will be
prepared under total method as follows:
Steps to be followed to prepare trial balance under
total and balance method are given below:
Step 1: Calculate the
totals of debit and credit columns of all ledger accounts and calculate the balances
in each ledger account.
Step 2: Enter the
name of the account in the particulars column and enter the debit total in the debit
total column and credit total in the credit total column for each account
separately. Also enter the debit balances in the debit balance column and
credit balances in the credit balance column for each account.
Step 3: Enter the page number of ledger from which the balance is taken in the
Ledger Folio column
Step 4: Total all the
amount columns. Total of debit total column and total of credit total column
must be equal. Also total of debit balance column and total of credit balance
column must be equal. If not equal, locate the errors and make the trial
balance agree.
For the above
example, trial balance will be prepared under total and balance method as
follows:
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