Trial Balance Preparation - Class XI

Closing stock usually doesn't appear in the trail balance, if it does it will appear only in balance sheet on the assets side and not in trading account. It is the stock left in business at the end of the year.

Liabilities, income, profits, and capital have credit balances. Therefore, they appear in the credit column of the trial balance.

If there is a non agreement of trial balance the possible reasons could be complete omission of posting, due to transposition of the posting or there has been a wrong posting either on debit or credit side. 

Prepaid expenses means the expense which are already paid but the services against which are yet to receive. While passing the closing entry, expenses account will be credited by debiting the prepaid expense.

All expense and Revenue accounts appearing in the trial balance are transferred to the trading and profit and loss account. All the direct expenses and revenues will be transferred to the trading account whereas all the indirect expenses and revenues will be transferred to profit and loss account. 

Trial balance can be prepared in three ways:

Trial balance can be prepared in three ways:

Totals method is not in use widely as it does not determines the accurate balances of the accounts and thus, also does not help in the preparation of the Financial statements or final accounts.

Income tax is a payment and expenses. Expense are always debited. Hence Income tax appears in trial balance debit column. 

Drawing is a personal withdrawal done by the proprietor. All personal drawings are debited to the drawing account. 

If the purchase book is cast short, the total posted to the Purchases account is understated. This creates an imbalance in the trial balance because the debit side will be less than the credit side.

A trial balance is a statement showing the balances, or total of debits and credits, of all the accounts in the ledger with a view to verify the arithmetical accuracy of posting into the ledger accounts. Trial balance is an important statement in the accounting process, which shows final position of all accounts and helps in preparing the final statements.

Opening stock is an asset and represents a debit balance. Therefore, it is recorded in the debit column of the 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.

A trial balance is a statement prepared on a separate sheet of paper to check the arithmetical accuracy of the ledger accounts.

The net trial balance (or balance trial balance) is more commonly used in practice because it is concise and easier to use for preparing financial statements.

Closing stock is an adjustment made at the end of the accounting period. It is usually determined after the trial balance is prepared, so it does not appear in it.

Trial balance is prepared by taking the individual ledger balances. If the trial balance agrees, it proves that the books of arithmetical correct. If trial balance is not tallied i.e. debit and credit are not agrees, that means the books of account are not arithmetically correct. 

In total method, total of each side in the ledger is ascertained separately and shown in the trial balance in the respective columns. However, this method is not widely used in practice, as it does not help in assuming accuracy of balances of various accounts and preparation  of financial statements.

Accrued income is income which has been earned but not yet received. Income must be recorded in the accounting period in which it is earned. Therefore, accrued in, a corresponding income must be recognized in the accounting period in which it arises rather than in the subsequent period in which it will be received. As income will be credited to record  the accrued income, a corresponding receivable mist be created to account for the debit side of the transaction. The accounting entry to record accrued income will be as follows: 

Total-cum-balances Method is a combination of totals method and balances method.  Under this method four columns for amount are prepared. Two columns for writing the debit and credit totals of various accounts and two columns for writing the debit and credit balances of these accounts. This method is time consuming and hardly serves any additional or special purpose.

Under balances method trial balance is prepared by showing the balances of all ledger accounts and then totalling up the debit and credit columns of the trial balance to assure their correctness. Balances Method is the most widely used method in practice.

Closing stock is usually not shown in the trial balance and is shown as an adjustment below the trial balance. Hence. when its shown in the trial balance it will only appear in the balance sheet on the assets side and not in the trading account.  It is the stock left in business at the end of the year. 

At the end of the financial year, adjustment entries are also need to be passed for various adjustments. These adjustments are like outstanding expenses, prepaid expenses etc. Once these adjustment entries are passed, a final trial balance is prepared. 

The post-closing trial balance will contain only balance sheet accounts. A Post-closing trial balance is prepared after all the adjusting entries are passed. Basically, it contains all the balances of permanent account i.e., balance sheet. 

Debit balances in a trial balance represent assets, expenses, or losses. Since all three are listed, 'All of these' is the correct answer.

The trial balance is primarily designed to check the arithmetical accuracy of the ledger postings. It helps identify clerical errors, but it cannot detect errors of principle or omission.

The trial balance is prepared to fulfill the following objectives:
1. To ascertained the arithmetical accuracy of the ledger accounts.
2. To help in locating errors.
3. To help in the preparation of the financial statements.

Bank overdraft is a liability and liabilities are always having a credit balance. 

Trial balance is normally prepared at the end of the financial year to check whether all entries are posted in the ledger. If trial balance agrees, it proves that books are arithmetically correct. Trial balance can be prepared by various methods:

There are two ways to record the depreciation in the books of account. 

All the liabilities and provisions account are always having a credit balance. When the depreciation is provided in the books by creating a depreciation provision account, following entry will be passed:

What is uncommon in the trial balance is closing stock appears in the trial balance and statement of assets and liabilities. The trial balance has balances of personal, nominal and real accounts. 

Before finalization of account, closing entries are required to be passed in the books of account by transferring all the nominal accounts i.e. account of expenses and incomes to the respective a/c.  At the end of the financial year, all nominal accounts will not be carried over to the next financial year. 

Error in balancing an account is an error of commission. In such situation, trial balance will not be tallied. Hence these kind of errors can be revealed by the trial balance. 

If trial balance agrees, it is assumes that the books are arithmetically correct. But it does proves that the books are error free. There are errors which does not give any effect in the total of trial balance but errors are prevailing in the books. But such errors will not affect any accounting procedure. 

An error in totaling a journal (like the returns inwards journal) results in an incorrect total being posted to the ledger, which causes the trial balance to not agree. The other options involve errors that do not affect the equality of debits and credits.

Ideally, errors of accounting need to be rectified in the same financial year to show a true and fair view of the financial statement. 

Recording of sales transaction in subsidiary books is an example of complete omission. Its an error of omission. Since both the sides are not recorded, hence trial balance will not be affected. 

Balance sheet and Income statement shows the financial position of a business.

If a worksheet is prepared, there is no need to separately prepare a Trial balance. An accounting worksheet is prepared by the book keepers and accountant to complete the accounting cycle and prepare year-end reports like unadjusted trial balance, adjusting journal entries etc. 

The foremost objective of trial balance is to ascertain accuracy and detection of errors.

• Posting wrong amount on one side – the trial balance will not tally if the posting in an account is made with incorrect amount. For example if an account is debited with 500 instead of 5000, the trial balance won’t tally.

• Error in balancing – sometimes due to calculation errors the balance of the ledger accounts can be wrong, and this balance is transferred to the trial balance which will not tally because of the error in calculating the balance.

• Wrong totaling of subsidiary books - calculation errors may occur in totaling of debit or credit sides of accounts in ledger which leads to error in balancing of the accounts, this balance is transferred to trial balance which will not tally.

When purchase account is short by some amount, the trial balance shows a difference between the debit and the credit balances of the accounts.

Even after the trial balance tallies, that doesn’t means there is no error in the preparation.

• Errors of complete omission - if a transaction is completely omitted or not recorded in the journal or any subsidiary books , it is termed as error of omission.  Such error will not effect the trial balance as it is not recorded on the debit side of an account nor on the credit side of another account.

• Compensatory errors - compensating errors is when the effect of one error is neutralized by some other errors. For example, if Ram’s account is debited with 500 instead of 5000 and on the other hand Shyam’s  account is debited with 5000 instead of 500. This situation would not have any effect on the trial balance .

• Error of principle – when the fundamental principle of accounting is violated while preparing the accounts, this is known as error of principle. These errors are made when there’s no proper distinction between capital and revenue items i.e., capital expenditure being treated as revenue expenditure and vice versa.

Posting of sales of Rs.1020 to Madhav a/c is done by Rs.1200. Its a single sided error. Madhav's a/c is excessively debited by Rs.180. To rectify the transaction, credit is given to Madhav by Rs.180 stating "by excess debit for sales Rs.180."

The purpose of a trial balance is to prove that the value of all the debit value balances equal the total of all the credit value balances. If the total of the debit and the credit columns do not match then there is an error in the ledger accounts. This error must be found before a profit and loss statement and balance sheet can be produced. Apart from this there is no statutory importance of trial balance from the point of view of law. 

The journal for goods distributed as free samples is -

The trial balance is not affected when a wrong recording is made in the journal but not posted at all. This is because the incorrect entry of the journal has not been posted to the ledger accounts at all. This means the incorrect balance is not transferred to the trial balance, which will not be affected.

Posting a correct amount in the wrong account on the correct side is the error of posting. This error does not affects the agreement of the trial balance because even though the posting is made to the wrong account but the amount entered is correct and the accounting treatment is same as it would be in the correct account. 

When amount is spent on repairs of existing fixed assets, it is treated as revenue expenditure and is debited to repairs account. But when amount is spent on repair of old machine purchased, it is treated as capital expenditure and is added to the value of the machinery or asset. This is because amount spent on repair of old machinery purchased enhances the efficiency of the asset which is assumed to be used for a long period of time.

Income tax paid by the proprietor is on the personal income of the proprietor as business do not have income. It is not a expenditure of the firm. It is a form of drawing by the proprietor and is deducted from the capital of the firm as it leads to outflow of proprietor's capital fund from the business.

Outstanding wages are related to the current year but remain unpaid. As they are expenses of the current year, they must be debited and charged from the profit and loss of the current year. The expenses remained unpaid during the current year, so they are liability of the firm. 

Interest paid on bank loan is an indirect expense and is debited to the profit and loss account as it is a charge against profit. In the case the total interest paid for the year is 12% of Rs 40000 i.e., 4800. The interest already paid is Rs 3800, the remaining Rs 1000 has to be paid as it is a charge against the profit. Thus Rs 1000 will be debited to the profit and loss account to pay the full amount of interest.

Discount received is the amount received from the creditors for early payments. It is an indirect income for the business and is credited to the profit and loss account. Provision for discount on debtors is the estimated amount of creditors which is not to be paid. It is a saving and an income and is so credited to the profit and loss account. 

Provision for discount on debtors and provision for bad debts are deducted from the sundry debtors balance to show the actual value in the balance sheet. The value of sundry debtors in H's balance sheet will be(50000-4000-2000) i.e., 44000. This is because the new adjustment says to create provision for discount on debtors at Rs 2000 and provision for bad debts at Rs. 4000.

While recording the transaction, there is a possibility of having the error. Since accounting is based on double entry system, for every debit there will be a credit. Hence at any point of time, trial balance must be tallied. If trial balance dose not matches, there must be some clerical error.

Mr. A is a common person which is included in Sundry Debtors and Sundry Creditors. A common amount of Rs.3000 has to be adjusted from sundry debtors and sundry creditors to show the net balance in the balance sheet. 

Trial balance is prepared to check and confirm the posting of all accounting entries. Trial balance is prepared with the help of ledger account. All the balances from each of ledger account is taken in a list in the debit and credit column. Both the sides of trial balance must be equal as accounting is based on the double entry system of accounting. 

At the end of the financial year, while closing the books of account there are certain adjustment entries need to be passed by debiting/crediting  the trading account or profit & loss account. Entry for closing stock will be passed as: 

Cash Account is a real account and part of assets. All assets account are shown in the balance sheet. Cash is a current assets and shown in current assets in the balance sheet. 

Purchases returns (or return outwards) represent a reduction in purchases. Since purchases are debited, purchases returns are credited in the ledger and thus appear on the credit side of the trial balance.

Wages are an obligation on the part of the company. When an obligation is met in advance its a right. Hence, wages paid in advance is a right and a right is an asset of the company.  

Apprenticeship premium received is an income for the business. All incomes are credited to the Profit and Loss account.

Carriage outwards is the seller's expense to transfer the goods to the customer. It is selling expense and therefore an indirect expense. Hence, carriage outwards appearing the trial balance will appear on the debit side of P & L A/c.

Wages and salaries appearing in trial balance are expenses made on wages and salaries by the company during the year. They are to be shown in the debit side of Trading account as all expenses and losses are debited.