Trial Balance 5u2k12

Trial Balance The Trial Balance is a statement of ledger balances on a particular date. It lists the s together with their debit and credit balances extracted at a given date from the ledger. Preparation of a Trial Balance The following are the steps taken in preparing a Trial Balance: 1. Determine the balances of each in the ledger 2. List the titles and their balances. 3. Total the debit and credit balances. 4. Prove their equality. Trial Balance as at …………………….. Title of s Debit Credit Assets XXX Expenses XXX Drawings XXX Capital XXX Liabilities XXX Incomes XXX Provisions XXX XXX XXX Items recorded on the debit side of a Trial Balance: 1.

Assets Examples: Property, Furniture, Computer equipment, Motor vehicle, Trade receivables, Cash and cash equivalent cash, cash and cash equivalent - bank, Petty cash, other receivables etc.

2.

Expenses Examples: Ordinary goods purchased, Rent, Electricity, Telephone, Water, Wages, Insurance, Advertising, General expenses, Bad debts, Depreciation, Carriage inwards, Carriage inwards, Returns inwards, Discount allowed, etc.

3.

Drawings

Items recorded on the credit side of a Trial Balance: 1.

Liabilities Examples: Trade payables, Loans, Bank overdraft, other payables, etc

2.

Incomes Examples: Commission received, Interest received, Rent received, discount received, dividend received, purchases returns, etc.

3.

Capital

4.

Provisions

Uses of Trial Balance The main purposes of the Trial Balance are as follows: 1.

To check arithmetical accuracy of debits and credits / to check the arithmetical accuracy of the double entry records Double-entry bookkeeping is the recording of business transaction using the double entry principle, that is, always debiting an and crediting another with the same amount. Thus, the total of the debits should equal to the credits.

2.

It facilitates preparation of financial statements As all ledger balances are found in the Trial Balance, financial statements (Comprehensive Income Statement and Statement of Financial Position) can be prepared from them

Limitations of Trial Balance A Trial Balance that balances does not necessarily prove that all transactions have been properly recorded or that the ing process is error-free. This is because numerous mistakes exist even though the Trial Balance totals are in agreement. (This will be dealt in the chapter correction of errors)

Format of Trial Balance: Trial Balance as at ……………………………………. Title of s Debit Credit Opening Inventory XXX Asset Ordinary goods purchased XXX Expense Sales returns / returns inwards XXX Expense Drawings XXX Drawings Revenue XXX Income Purchases returns/ returns outwards XXX Income Goodwill XXX Asset Plant and Machinery XXX Asset Furniture and Fittings XXX Asset Property XXX Asset Motor Vehicles XXX Asset Premises XXX Asset Office Equipment XXX Asset Trade receivables XXX Asset Trade payables XXX Liability Cash and cash equivalent – cash XXX Asset Cash and cash equivalent – bank XXX Asset Bank overdraft XXX Liability Discount allowed XXX Expense Discount received XXX Income Carriage inwards XXX Expense Carriage outwards XXX Expense Stationery XXX Expense Rent payable XXX Expense Commission payable XXX Expense Insurance XXX Expense Repairs and maintenance XXX Expense Wages and salaries XXX Expense Interest on loan XXX Expense Air freight charges XXX Expense Telephone bills XXX Expense Depreciation charges XXX Expense Bad debt XXX Expense Provision for bad and doubtful debt XXX Provision Provision for depreciation XXX Provision Capital XXX Capital Loan from bank XXX Liability Dividend received XXX Income Rent received XXX Income Other receivables XXX Asset Commission received XXX Income Other payables XXX Liability XXX XXX Closing inventory Note: Closing inventory is recorded outside the Trial Balance