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Chapter: 11th Accountancy : Trial Balance

Methods of preparing trial balance

A trial balance can be prepared in the following methods:

Methods of preparing trial balance

A trial balance can be prepared in the following methods:

 

i. Balance method

 

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.

 

ii. Total method

 

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.

 

iii. Total and Balance method

 

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.

 

1. Balance method

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:



Specimen of a trial balance



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



Ledger





Trial balance under balance method



2. Total method

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:



3. Total and Balance method

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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