Trail Balance- Accounting- Lecture No- 5

Subject: Accounting 
Topic: Trail Balance 
Subject Code: HUM 4301
Teacher Name: SM Shahidul Islam 

Download Link

Trial Balance

Concept of Trial Balance:

Trial Balance is a list of closing balances of ledger accounts on a certain date and is the first step towards the preparation of financial statements. It is usually prepared at the end of an accounting period to assist in the drafting of financial statements. Ledger balances are segregated into debit balances and credit balances. Asset and expense accounts appear on the debit side of the trial balance whereas liabilities, capital and income accounts appear on the credit side. If all accounting entries are recorded correctly and all the ledger balances are accurately extracted, the total of all debit balances appearing in the trial balance must equal to the sum of all credit balances.

Objectives of Trial balance:

The main objectives of the preparation of trial balance are as follows-

·         Verification of posting the entries in journal and ledger accurately is one of the prime objectives of trial balance.

·         To facilitate in preparation of the comprehensive income and the statement of financial position.

·         To discover the mistakes and rectify the errors, if any, present in the activities of maintaining journal and ledger

·         To verify whether both the debit and credit aspects of the transactions as per double entry system have been recorded properly in the books of accounts.

·         Trial balance can convey the information to the financial statement

Format:

Name of the organization

Trial balance

As on ----20---

Serial	Name of the account	L.F	Debit amount	Credit amount

Procedure of preparing a Trial Balance taking ledger balances into consideration:

Where only ledger balances are given in the absence of ledger, the following rules should be followed to ascertain which of the balances will be put on the debit column and on the credit column of a trial balance

Ledger balances of Debit side	Ledger balances of credit side
All the assets: land, building, leasehold, property, Machines, furniture’s, investment, accounts receivables, debtors, goodwill, cash in hand/bank, etc.	All liabilities:Creditors, accounts payable, capital, loan, etc.
All expenses: Purchase, wages, opening stock, salary, advertisement, rent, commission, office expenses, depreciation, bad debt, and discount allowed.	All types of income and profits: Sales, interest received, discount received, interest on investment, interest on bank deposits, etc.
Expenses paid in advance: Advance salaries, advance rent, advance wages	Outstanding expenses and unearned incomes: Advance rent income, advance consultation fee
Accrued incomes: Interest accrued on investment, commission accrued	All types of reserves: Reserve for bad and doubtful debt, general reserve, reserve for discount on debtors.
Other items: Sales returns, loan allowed, drawing	Other items: Purchase returns

Exercise:

Following information is ledger balance of Mr. Shaheed as on 31 July 2017:

Accounts	Amount
Cash	119000
Capital	100000
Sales	60000
Debtors	9000
Purchase	20000
Salary	3000
House rent	7000
Wages	2000