Trial Balance – Descriptive Notes

1 What is Trial Balance?
Trial balance is a list of all ledger account balances (debit and credit) prepared on a particular date. Debit balances are shown in one column and credit balances in another.
Main purpose: To check whether total debit = total credit (arithmetical accuracy of books).

2 Objectives of Preparing Trial Balance
1 To check the arithmetical accuracy of recording and posting transactions.
2 To locate and rectify errors quickly.
3 To get a complete summary of all ledger accounts in one place.
4 To help in preparing final accounts (Trading, Profit & Loss, Balance Sheet).
5 To assist management in evaluation and decision-making.

3 Advantages of Trial Balance
1 Confirms arithmetic accuracy of books.
2 Helps find and correct errors easily.
3 Provides a complete summary of all accounts.
4 Makes preparation of final accounts easier.
5 Useful for internal audits and fraud detection.

4 How to Prepare Trial Balance (Step-by-Step Procedure)
1 Write the name of the business and title: "Trial Balance as on … (date)".
2 Assign serial numbers to each account.
3 List account names in the second column.
4 Record ledger folio (L.F.) numbers in the third column.
5 Enter debit balances in the debit column.
6 Enter credit balances in the credit column.
7 Total both columns – they must be equal.
8 If totals are not equal → difference goes to Suspense Account.

5 Rules for Debit and Credit in Trial Balance
Debit side (left column): All assets, expenses, losses, drawings.
Credit side (right column): All liabilities, capital, income, gains.

6 Specimen Format of Trial Balance

7 Errors Disclosed by Trial Balance
1 Posting amount to wrong side of account.
2 Posting wrong amount to one side only.
3 Posting done only on one side (omission).
4 Wrong totaling or balancing of ledger account.
5 Double posting in the same account.
6 Posting balance to wrong side in trial balance.
7 Forgetting to transfer any ledger balance.
8 Wrong totaling of subsidiary books (Purchase book, Sales book, etc.).

8 Errors NOT Disclosed by Trial Balance
1 Complete omission – transaction not recorded at all.
2 Error of commission – wrong amount, but both sides equal.
3 Error of principle – capital expenditure treated as revenue.
4 Compensating errors – one mistake cancels another.
5 Double posting of complete entry – both debit & credit posted twice.

9 Suspense Account – Concept & Use
Suspense account is a temporary account opened to make trial balance totals equal when debit ≠ credit.
1 If debit > credit → difference goes on credit side of Suspense A/C.
2 If credit > debit → difference goes on debit side of Suspense A/C.
3 After errors are corrected → Suspense A/C balance becomes zero.

10 Examples of Items in Trial Balance

11 Important Solved Problems (Exam Type – Table Format)

PP-1: Prepare Trial Balance of Ram as on 31 March 2025
Given Balances:
Cash 45,000, Purchases 1,80,000, Debtors 80,000, Furniture 70,000, Salary 25,000, Capital 3,00,000, Sales 2,50,000, Creditors 60,000, Bank Loan 40,000, Commission Received 10,000

Solution (Trial Balance):

PP-2: Prepare Trial Balance when totals do not agree (use Suspense Account)
Given: Purchases 50,000, Sales 60,000, Debtors 20,000, Creditors 10,000. Debit total ≠ Credit total.

Solution (Trial Balance with Suspense A/C):

PP-3: Example of Compensating Error
Question: A purchase of 5,000 was posted as 4,000 (underposted), and sales of 5,000 was posted as 6,000 (overposted). Show the effect on trial balance.

Solution:

PP-4: Example of Error of Principle
Question: Machinery purchased for 1,00,000 was wrongly debited to Purchases A/C instead of Machinery A/C. How does it affect trial balance?

Solution:

For further practice visit this link !!

https://besidedegree.com/exam/s/academic