2.4 TRIAL BALANCE
After posting the journal entries into the ledger and balancing all accounts, we prepare a
statement called Trial Balance. This statement shows the balances of all the accounts which
appear in the ledger. The debit balances are shown in one column and the credit balances in
the other. It is usually prepared just before preparing the final accounts. me purpose is to
check the arithmetical accuracy of the books of account.
You know that under the Double Entry System for every debit'there is an equal and
corresponding credit. So, the total of debits given to different accounts must be equal to the
total of credits given to different accounts. Similarly, the total of debit balances in different
accounts must be equal to the total of credit balances in different accounts. Now if the Trid
~aiance tallies i.e., the total of its debit balances column is equal to the total of its credit
balances column, it would mean that both the aspects of each transaction have been
correctly &corded in the ledger. If, however, the two totals do not tally it implies that some
errors have been committed while posting the transactions into ledger.
There are two methods of preparing the Trial Balance: (i) Totals Method, and (ii) Balances
Method. Under the first method we show the totals of each side of an account in the Trial
Balance. The debit side total of an account is shown h the debit column of the Trial
Balance and the credit side total of the account in the credit column. Under the second
method we show only the balances of each account in the Trial Balance. The second method
is more convenient and commonly used because it eliminates all those accounts which have
nil balance
Now, let us prepare the Trial Balance from the ledger accounts prepared. Under Illustration
3 you will notice that all the accounts which appear it1 the ledger have been included and
their balances entered in the appropriate column. The total of debit balances column in the
Trial Balance is equal to the credit balances column. This means that all postings have been
correctly made in different ledger accounts.
 |
| Trial Balance as on December 31,1987 |
2.5, OPENING ENTRY
When an accounting year begins. the previous year's balances in different accounts are
brought forward lo the new books of account. This is done by means of a journal entry-dl
assets accounts are debited and all liabilities accounts (including the proprietor's capital
account) are credited. In case the Capital Account balance is not given, it can be
calculated by deducting the other liabilities from the total assets. This will be clear from
Illustration 4.
Illustration 4
Ashok has the following balances on December 31, 1987: Cash in hand Rs. 5,000, Debtors
Rs, 7,200 (Ramesh Rs. 6,000, Lalwani Rs. 1,200); Stock of goods Rs. 18,800; Machinery
Rs. 8,000, Furniture Rs. 3,000; Creditors Rs. 1,500 (Ravi & Co.) ; Ba* Loan Rs. 3,000.
Pass the opening entry on January 1,1988.
Posting the Opening Entry into Ledger: The posting of an Opening entry into ledger is
slightly different from the posting of other journal entries. We have to open the accounts for
all items that appear in the opening entry. Then, in the accounts which have.been debited in
opening entry, we shall write 'To Balancb b If' on their debit side, and in the account which
have been credited in the opening entry, we shall write 'By Balance b/f' on their credit side.
The date, folio and amount columns are completed in the usual manner. As a matter of fact,
the accopnts which have been debited and credited through the opening entry merely
represent the closing balances of various personal and real accounts from the previous year.
The ksdng of the opening entry as given in Illustration 4 will be made as follows:
2.6 LET US SUM UP
Journal is a book of original entry wherein all business transactions are recorded in n
chronological order. he journd shows the accounts to be debited and those to be credited
in respect of each transaction. The journal does hot provide all information regarding a
particular item at one place. Hence, we maintain another book called Ledger. In ~his book
we open separate accounts for each item. An account has two sides, the debit side and the
credit side. When an account is balanced, it shows the net effect of all transactions relating
to that account during a given period, Before preparing a summary in the form of final
accounts, a statement called Trial Balance is prepared to check the arithmetical accuracy of
posting into Ledger. This statement shows the balances of a11 the accounts and if the totaI of
debit<.Jalances tally with the total of credit balances it is assumed that the transactions have
been correctly recorded in the ledger.
2.7 KEY WORDS
Bad Debt: The ambunt of d%€ which is irrecoverable.
Cash Discount: An allowance given by the creditor to the debtor for making prompt payment of the amount due from him.
Cheque: An instrument used for withrlt,,wing money from the bank. I Compound Entry: A journal entry involving more than two accounts. 1
Drawings: Amount withdrawn by the proprietor from the business for personal use. . I
Insolvent: A person who is not in a position to, pay his debts in full and is so declared by
the Court.
Opening Entry: A journal entry passed at the beginning of the year to bring forward the
previous year's assets and liabilities.
Posting: The process of entering transactions into the ledger accounts.
Returns Inwards; Goods returned by customers i.e., sales returns.
Returns Outwards: Goods returned to suppliers i.e., purchase returns. ,
Stock: Goods lying unsold with the business. It also includes unused raw materials and the
stock for semi-finished goods.
Trade Discount: An allowance given by the seller to the buyer on the list price at the time
of sale.
.Good: Articles bought for resale and usually traded by the business unit.
2.9 ANSWERS TO CHECK YOUR PROGRESS
A 3 Purchases Account, $ales Account, Purchases Returns Account, Sales Returns.
Account and Stock Account.
5 (a) ii (b) i , (c) iii (d) ii
(e) iii (0 ii (g) ii (h): iii
B 1 (i) True (ii) False (iii) True
' i: (iv) True (v) False (vi) True
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