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Trial Balance: NBSE Class 9 Book Keeping notes
Get summaries, questions, answers, solutions, notes, extras, theories, practicles, PDF, and guide of Chapter 7 Trial Balance, NBSE Class 9 Book Keeping (BK) textbook, which is part of the syllabus of students studying under Nagaland Board. These solutions, however, should only be treated as references and can be modified/changed.
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Summary
A trial balance is a statement that shows the balances of all ledger accounts on a specific date. It helps check if the books of accounts are correct. The debit and credit columns should match. If they do, it means the books are at least arithmetically correct. A trial balance is not an account but a statement. It is prepared on a loose sheet of paper. It does not form part of the double-entry system.
The trial balance has many purposes. It checks the arithmetical accuracy of the ledger accounts. It ensures that both aspects of each transaction are recorded correctly. It also helps in preparing final accounts like the trading and profit and loss account and the balance sheet. It provides a summarized view of assets, liabilities, incomes, and expenses.
However, a trial balance has limitations. Some errors cannot be detected through it. Compensatory errors happen when excess debits or credits cancel out. Errors of commission occur when entries are made to the wrong accounts. Errors of principle happen when entries are made using the wrong type of account. Errors of omission occur when transactions are not recorded. If a voucher is missed in the day book, it will not show in the trial balance. Wrong amounts entered in the day book also go unnoticed.
To prepare a trial balance, all ledger accounts must first be balanced. Accounts with debit balances are shown in the debit column. Accounts with credit balances are shown in the credit column. Accounts with no balance are not included. The totals of both sides are then added. If they match, the trial balance is said to be tallied.
There are certain rules for preparing a trial balance. Assets have debit balances and are shown in the debit column. Liabilities have credit balances and are shown in the credit column. Capital accounts have credit balances. Drawings accounts have debit balances. Purchases accounts always have debit balances. Sales accounts always have credit balances. Expenses and losses have debit balances. Incomes and gains have credit balances.
Closing stock usually does not appear in the trial balance unless it is brought into accounts before preparing it. There are different methods to prepare a trial balance. One method is the balance method. In this method, the trial balance is prepared from the balances of ledger accounts instead of their debit and credit totals. Only accounts with balances are included. This method is simple and widely used.
Illustrations and examples are provided to explain how journal entries are passed, posted in ledgers, and how a trial balance is prepared. Practical problems help understand the process better. Short answer and long answer questions test knowledge about the trial balance, its features, functions, advantages, and limitations. Multiple-choice questions check understanding of basic concepts. Assertion-reason and statement-based questions assess deeper comprehension. Case studies apply theoretical knowledge to real-life scenarios.
Textbook solutions
Multiple Choice Questions (MCQs)
1. A trial balance is
(a) a statement
(b) a summary
(c) an account
(d) none of these
Answer : a. a statement
2. Trial balance checks
(a) the honesty of the book keeper
(b) accuracy of the book keeper
(c) the arithmetical accuracy of books
(d) none of these
Answer : c. the arithmetical accuracy of books
3. A trial balance is prepared with the help of
(a) Trading account
(b) Journal
(c) Balance sheet
(d) Ledger Accounts
Answer : d. Ledger Accounts
4. Which of the following always has a credit balance?
(a) Cash
(b) Debtors
(c) Creditors
(d) Rent paid
Answer : c. Creditors
5. Which item shows a debit balance in the Trial Balance?
(a) Purchase Return
(b) Sales
(c) Salary Outstanding
(d) Prepaid Expense
Answer : d. Prepaid Expense
6. Which of the following may have a debit or credit balance?
(a) Cash
(b) Bank account
(c) Land and building
(d) Creditors
Answer : b. Bank account
7. The verification that the debits and credits in the ledger are equal is called
(a) Journal
(b) Ledger
(c) Trial balance
(d) None of these
Answer : c. Trial balance
8. Errors which affect one account can be:
(a) Errors of principle.
(b) Errors of posting
(c) Errors of omission
(d) None of these
Answer : b. Errors of posting
True/False
1. Trial Balance is just a statement and not an account.
Answer: True
2. A tallied trial balance is not a conclusive proof of accuracy of accounts.
Answer: True
3. Return outward account always has a debit balance and hence is shown in the debit column of a Trial Balance.
Answer: False
4. Accounts of incomes and gains have credit balances and are shown in the credit column of a Trial Balance.
Answer: True
Assertion Reason Based Questions
Choose the correct option :
A. Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of the Assertion (A).
B. Both Assertion (A) and Reason (R) are correct but Reason (R) is not the correct explanation of Assertion (A).
C. Only Assertion (A) is correct.
D. Only Reason (R) is correct.
1. Assertion A Trial Balance is prepared for ascertaining the arithmetical accuracy of ledger accounts.
Reason The sum of the debit and credit columns of trial balance is equal, it is assumed that the posting to the ledger accounts, is correct.
Answer: A
2. Assertion Compensatory errors are those errors which can be easily disclosed by the trial balance.
Reason Compensatory errors arise due to excess debit or under debit of accounts but the same are neutralized by excess credits or under credits in the same account or other accounts.
Answer: D
Statement Based Questions
Choose the correct option from the options given below:
A. Statement I is true and II is false.
B. Statement II is true and I is false.
C. Both the statements are false.
D. Both the statements are true.
1. Statement I: Trial Balance is summarised statement of balances of accounts on a certain date.
Statement II: Trial Balance can be prepared only when all the ledger accounts have been balanced.
Answer: D
2. Statement I: Trial Balance records only those ledger accounts which shows debit and credit balances, if an account shows no balance then that account is not included in the trial balance.
Statement II: Each ledger account is balanced and then trial balance is prepared from the balances of ledger accounts instead of their debit and credit totals.
Answer: D
Short Answer Type-l Questions
1. Define Trial Balance.
Answer : A Trial Balance is a schedule of debit and credit totals or balances of all the Ledger accounts, drawn at any date, at periodic intervals or at the end of a financial period. It is prepared with the help of ledger balances to find out whether debit total agrees with credit total.
2. Write two features of Trial Balance.
Answer : Two features of Trial Balance are: (i) It is just a statement, and not an account. (ii) It contains the list of balances of all Ledger Accounts and Cash Book.
3. Is Trial Balance an account?
Answer : No, a Trial Balance is not an account; it is just a statement.
4. Write one function of Trial Balance.
Answer : One function of Trial Balance is ascertaining the arithmetical accuracy of ledger accounts. If the sum of the debit and credit columns of the trial balance is equal, it is assumed that the posting to the ledger accounts is correct.
Short Answer Type-Il Questions
1. Define Trial Balance. Give features of Trial Balance.
Answer : A Trial Balance is defined as “The statement prepared with the help of ledger balances, at the end of the financial year or at any other date, to find out whether debit total agrees with credit total, is called a Trial Balance.” (William Pickles). It is a statement, not an account, containing the balances of all ledger accounts as at a given date, arranged in debit and credit columns placed side by side, prepared to check the arithmetical accuracy of ledger postings.
The features of a Trial Balance are:
(i) It is just a statement and not an account.
(ii) It contains the list of balances of all Ledger Accounts and Cash Book.
(iii) It is neither a part of the double-entry system nor does it appear in the actual books of accounts; it is usually prepared on a loose sheet of paper.
(iv) It is prepared on a specific date.
(v) It checks the arithmetical accuracy of the Ledger.
(vi) A tallied trial balance is not a conclusive proof of the accuracy of accounts.
2. Write four advantages of Trial Balance.
Answer : The advantages of a Trial Balance are:
(i) It provides a useful check upon the arithmetical accuracy of ledger accounts. If the sum of the debit and credit columns of the trial balance is equal, it is assumed that the posting to the ledger accounts is correct.
(ii) It serves as a proof of the completion of the double-entry system, ensuring that for every debit, there is an equal credit.
(iii) It acts as a summarised statement of balances of accounts on a certain date, enabling one to know the details of assets, liabilities, expenses, losses, incomes, etc.
(iv) It helps in the preparation of final accounts by providing a basis for the preparation of the Trading and Profit & Loss Account and the Balance Sheet.
3. What are the limitations of Trial Balance?
Answer : The limitations of a Trial Balance are:
(i) Compensatory Errors: These errors arise due to excess debits or under-debits of accounts but are neutralized by excess credits or under-credits in the same account or other accounts, making them undetectable through the trial balance.
(ii) Error of Commission: These occur when entries are made to the correct amount and appropriate side but to the wrong account of the correct type, which does not affect the totals.
(iii) Error of Principle: These occur when entries are made to the correct amount and appropriate side but to the wrong type of account, which also does not affect the totals.
(iv) Error of Omission: These occur when a transaction is not recorded in the books of entry, leaving no impact on the trial balance.
4. What points are remembered while preparing Trial Balance?
Answer : The following points are remembered while preparing a Trial Balance:
(i) The Ledger Accounts showing debit balances are shown in the debit column of the Trial Balance, and those showing credit balances are shown in the credit column.
(ii) Accounts of assets such as Plant and Machinery, Furniture and Fixtures, Land and Building, Motor Car, Bills Receivable, Goodwill, Trademarks, Patents and Copyright, Cash in Hand, etc., have a debit balance and are shown in the debit column.
(iii) Bank balance may be debit or credit. If it is debit, it is shown in the debit column; if credit, it is shown in the credit column.
(iv) Accounts of liabilities such as bank overdraft, bills payable, creditors, etc., have a credit balance and are shown in the credit column.
(v) Capital account shows a credit balance and is written on the credit side, while Drawings account shows a debit balance and is written on the debit side.
(vi) Purchases Account always has a debit balance, Sales Account always has a credit balance, Returns Inward Account has a debit balance, and Returns Outward Account has a credit balance.
Long Answer Type Questions
1. Explain Trial Balance. Give its functions and format.
Answer : A Trial Balance is a statement prepared with the help of ledger balances, at the end of a financial year or at any other date, to find out whether the debit total agrees with the credit total. It is a summarised statement of balances of accounts on a certain date, enabling one to know the details of assets, liabilities, expenses, losses, incomes, etc.
The functions of a Trial Balance include:
(i) Ascertaining the arithmetical accuracy of ledger accounts: If the sum of the debit and credit columns of the trial balance is equal, it is assumed that the posting to the ledger accounts is correct.
(ii) Completion of double entry: The agreement of the two sides of the Trial Balance is proof, at least, of the fact that for every debit, an equal credit has been given.
(iii) Statement of ledger account balances: It provides a summarised statement of balances of accounts on a certain date.
(iv) Helps in the preparation of final accounts: A trial balance serves as a connecting link between the ledger and the final accounts, providing a basis for the preparation of Trading and Profit & Loss Account and a Balance Sheet.
(v) Helps to obtain a summary of the ledger accounts: A Trial Balance summarises all the ledger accounts, giving information about the assets, liabilities, income, and expenses.
The format of a Trial Balance is as follows:
TRIAL BALANCE as at [specific date]
| Heads of Accounts | L.F. | Debit Balance (₹) | Credit Balance (₹) |
| Total |
In this format, careful attention must be given to the following points:
(i) It is prepared on a particular date which should be written on the top.
(ii) In the first column, the name of all Ledger accounts are written. No account should be omitted, otherwise the Trial Balance will not agree.
(iii) In the second column, the Ledger Folio of the respective account must be mentioned in the respective column.
(iv) In the third column, the debit balance, if any, is written.
(v) In the fourth column, the credit balance is written.
(vi) The two columns are totalled at the end.
2. What is Trial Balance? Explain the Balance Method of Trial Balance with the help of examples.
Answer : A Trial Balance is a statement containing the balances of all ledger accounts, as at any given date, arranged in the form of debit and credit columns placed side by side and prepared with the object of checking the arithmetical accuracy of ledger postings.
The Balance Method of preparing a Trial Balance involves recording only those ledger accounts which show debit and credit balances. If an account shows no balance, then that account is not included in the trial balance. According to this method, a trial balance is prepared on the basis of balances of accounts. Each ledger account is balanced, and then the Trial Balance is prepared from the balances of ledger accounts instead of their debit and credit totals. This method is simple, requires less work, and is mostly used.
For example, consider the following balances extracted from the books of Jacob & Co.: Cash Account: ₹71,200 (Debit Balance) Purchases Account: ₹60,000 (Debit Balance) Sales Account: ₹45,000 (Credit Balance) Capital Account: ₹90,000 (Credit Balance)
Using the Balance Method, these balances would be recorded in the Trial Balance as follows: TRIAL BALANCE as at 31st March, 2023 Heads of Accounts L.F. Debit Balance (₹) Credit Balance (₹) Cash 71,200 Purchases 60,000 Sales 45,000 Capital 90,000 Total 1,31,200 1,35,000
Practical Problems
Questions
1. Journalise the following transactions, post them into the Ledger, and also prepare a Trial Balance:
| Date | Transactions |
|---|---|
| 2022 | |
| April 1 | Michael commenced business with cash ……………………………….. ₹1,00,000 |
| April 3 | Bought goods …………………………………………………………. ₹5,000 |
| April 4 | Sold goods to Garyson ………………………………………………… ₹4,000 |
| April 10 | Bought goods from Kevi ………………………………………………… ₹8,000 |
| April 15 | Paid trade expenses …………………………………………………… ₹2,000 |
| April 20 | Received cash from Gopal and allowed discount ₹50 …………………….. ₹3,950 |
| April 25 | Paid wages …………………………………………………………….. ₹700 |
| April 27 | Paid Kevi in full settlement …………………………………………… ₹7,700 |
| April 30 | Paid rent …………………………………………………………….. ₹1,500 |
Solution: Check below
2. Given below are the balances as shown by James on April 1, 2022, as well as his transactions for the month. Enter them in the Journal, post to the Ledger, and extract a Trial Balance therefrom:
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
|---|---|---|---|---|---|
| 2022 | 2022 | ||||
| April 1 | Cash in Hand | 2,000 | April 10 | Sold goods to Aiden | 1,000 |
| April 1 | Stock of goods | 45,000 | April 13 | Wages paid | 200 |
| April 1 | Bank Balance | 20,000 | April 15 | Received from Noah | 6,000 |
| April 1 | Due to Eli | 2,500 | April 15 | Paid into Bank | 10,000 |
| April 1 | Due from Aiden | 3,500 | April 18 | James took for private use | 500 |
| April 3 | Sold goods to Noah | 10,000 | April 23 | Sold goods to Lucas | 7,000 |
| April 5 | Cash sales | 4,000 | April 24 | Bought goods from Ryan | 6,500 |
| April 7 | Sold to Andrew | 500 | April 25 | Wages | 300 |
| April 8 | Bought goods from Eli | 1,500 | April 30 | Cash sales | 1,440 |
Solution: Check below
3. Prepare a Trial Balance from the following balances of Mr. Jaxon as at 31st March, 2022:
| Name of Accounts | Amount (₹) | Name of Accounts | Amount (₹) |
|---|---|---|---|
| Opening Stock | 30,000 | Furniture | 6,400 |
| Purchases | 80,000 | Machinery | 54,000 |
| Purchases Returns | 6,000 | Debtors | 64,000 |
| Sales | 1,78,200 | Creditors | 9,000 |
| Sales Returns | 7,300 | Bills Receivable | 4,200 |
| Rent | 1,700 | Bills Payable | 2,000 |
| Salaries | 5,800 | Cash in Hand | 9,000 |
| Goodwill | 800 | Bank Overdraft | 15,000 |
| Commission Received | 1,200 | Interest on Overdraft | 1,000 |
| Discount | 800 | Capital | 60,000 |
| Drawings | 8,000 |
Solution: Check below
4. Redraft correctly the Trial Balance given below:
| Debit Balances | Amount (₹) | Credit Balances | Amount (₹) |
|---|---|---|---|
| Capital | 8,000 | Debtors | 7,580 |
| Scrap Depreciation Recovered | 250 | Bank Deposits | 2,750 |
| Creditors | 1,250 | Discount Allowed | 40 |
| Returns Outward | 350 | Drawings | 600 |
| Bank Overdraft | 1,570 | Returns Inward | 450 |
| Rent | 360 | Sales | 13,690 |
| Salaries | 850 | Bills Payable | 1,350 |
| Trade Expenses | 300 | Grant Received | 1,000 |
| Cash in Hand | 210 | ||
| Opening Stock | 2,450 | ||
| Purchases | 11,870 | ||
| 27,460 | 27,460 |
Solution: Check below
5. From the following list of balances extracted from the books of David, prepare a Trial Balance as at 31st March, 2022. The amount required to balance should be entered as capital:
| Amount (₹) | Amount (₹) | ||
|---|---|---|---|
| Purchases | 20,00,000 | Proprietor’s withdrawals | 80,000 |
| Stock on 1st April, 2021 | 3,00,000 | Sundry Debtors | 4,50,000 |
| Sales | 50,00,000 | Sundry Creditors | 2,60,000 |
| Sundry Expenses | 10,000 | Bad Debts | 20,000 |
| Leasehold Premises | 6,00,000 | Investments @ 10% | 5,50,000 |
| Freehold Premises | 19,00,000 | Interest on Investments | 40,000 |
| Return Inwards | 20,000 | Long-term borrowings | 7,00,000 |
| Furniture and Fixtures | 4,00,000 | Loan from ICICI Bank | 8,20,000 |
| Equipment | 10,00,000 | Interest on Loan | 60,000 |
| Repairs to Equipment | 6,000 | Petty Cash Account | 1,000 |
| Depreciation | 84,000 | Balance at Bank | 39,000 |
| Stock on 31.3.2022 (not adjusted) | 5,00,000 |
Solution: Check below
6. The following Trial Balance has been prepared by an inexperienced accountant. Redraft it in a correct form:
| Name of Accounts | L.F. | Debit Balance (₹) | Credit Balance (₹) |
|---|---|---|---|
| Cash in Hand | 5,000 | ||
| Machinery | 23,000 | ||
| Purchases | 50,000 | ||
| Sundry Debtors | 25,000 | ||
| Carriage Inward | 2,000 | ||
| Carriage Outward | 1,000 | ||
| Wages | 17,000 | ||
| Rent and Taxes | 5,000 | ||
| Sundry Creditors | 18,000 | ||
| Discount Allowed | 1,000 | ||
| Returns Outwards | 2,000 | ||
| Returns Inwards | 4,000 | ||
| Capital | 23,000 | ||
| Drawings | 5,000 | ||
| Bank Loan | 14,000 | ||
| Interest on Loan | 1,000 | ||
| Opening Stock | 30,000 | ||
| Sales | 1,10,000 | ||
| Discount Received | 2,000 | ||
| Total | 1,69,000 | 1,69,000 |
Solution: Check below
Solutions
1. Solution
Journal entries in the books of Michael
| Date | Particulars | L.F. | Dr. (₹) | Cr. (₹) |
|---|---|---|---|---|
| 2022 | ||||
| April 1 | Cash A/c Dr. | 1,00,000 | ||
| To Capital A/c | 1,00,000 | |||
| (Being cash brought in as capital) | ||||
| April 3 | Purchases A/c Dr. | 5,000 | ||
| To Cash A/c | 5,000 | |||
| (Being goods purchased for cash) | ||||
| April 4 | Garyson A/c Dr. | 4,000 | ||
| To Sales A/c | 4,000 | |||
| (Being goods sold to Garyson on credit) | ||||
| April 10 | Purchases A/c Dr. | 8,000 | ||
| To Kevi A/c | 8,000 | |||
| (Being goods purchased from Kevi on credit) | ||||
| April 15 | Trade Expenses A/c Dr. | 2,000 | ||
| To Cash A/c | 2,000 | |||
| (Being trade expenses paid in cash) | ||||
| April 20 | Cash A/c Dr. | 3,950 | ||
| Discount Allowed A/c Dr. | 50 | |||
| To Gopal A/c | 4,000 | |||
| (Being cash received from Gopal and discount allowed) | ||||
| April 25 | Wages A/c Dr. | 700 | ||
| To Cash A/c | 700 | |||
| (Being wages paid in cash) | ||||
| April 27 | Kevi A/c Dr. | 8,000 | ||
| To Cash A/c | 7,700 | |||
| To Discount Received A/c | 300 | |||
| (Being payment made to Kevi in full settlement, discount received) | ||||
| April 30 | Rent A/c Dr. | 1,500 | ||
| To Cash A/c | 1,500 | |||
| (Being rent paid in cash) | ||||
| 1,33,200 | 1,33,200 |
Cash Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 1 | To Capital A/c | 1,00,000 | April 3 | By Purchases A/c | 5,000 | ||
| April 20 | To Gopal A/c | 3,950 | April 15 | By Trade Expenses A/c | 2,000 | ||
| April 25 | By Wages A/c | 700 | |||||
| April 27 | By Kevi A/c | 7,700 | |||||
| April 30 | By Rent A/c | 1,500 | |||||
| April 30 | By Balance c/d | 87,050 | |||||
| 1,03,950 | 1,03,950 | ||||||
| May 1 | To Balance b/d | 87,050 |
Capital Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 30 | To Balance c/d | 1,00,000 | April 1 | By Cash A/c | 1,00,000 | ||
| 1,00,000 | 1,00,000 | ||||||
| May 1 | By Balance b/d | 1,00,000 |
Purchases Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 3 | To Cash A/c | 5,000 | April 30 | By Balance c/d | 13,000 | ||
| April 10 | To Kevi A/c | 8,000 | |||||
| 13,000 | 13,000 | ||||||
| May 1 | To Balance b/d | 13,000 |
Garyson Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 4 | To Sales A/c | 4,000 | April 30 | By Balance c/d | 4,000 | ||
| 4,000 | 4,000 | ||||||
| May 1 | To Balance b/d | 4,000 |
Sales Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 30 | To Balance c/d | 4,000 | April 4 | By Garyson A/c | 4,000 | ||
| 4,000 | 4,000 | ||||||
| May 1 | By Balance b/d | 4,000 |
Kevi Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 27 | To Cash A/c | 7,700 | April 10 | By Purchases A/c | 8,000 | ||
| April 27 | To Discount Received A/c | 300 | |||||
| 8,000 | 8,000 |
Trade Expenses Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 15 | To Cash A/c | 2,000 | April 30 | By Balance c/d | 2,000 | ||
| 2,000 | 2,000 | ||||||
| May 1 | To Balance b/d | 2,000 |
Gopal Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 20 | To Balance c/d | 4,000 | April 20 | By Cash A/c | 3,950 | ||
| April 20 | By Discount Allowed A/c | 50 | |||||
| 4,000 | 4,000 | ||||||
| May 1 | By Balance b/d | 4000 |
Discount Allowed Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 20 | To Gopal A/c | 50 | April 30 | By Balance c/d | 50 | ||
| 50 | 50 | ||||||
| May 1 | To Balance b/d | 50 |
Wages Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 25 | To Cash A/c | 700 | April 30 | By Balance c/d | 700 | ||
| 700 | 700 | ||||||
| May 1 | To Balance b/d | 700 |
Discount Received Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 30 | To Balance c/d | 300 | April 27 | By Kevi A/c | 300 | ||
| 300 | 300 | ||||||
| May 1 | By Balance b/d | 300 |
Rent Account
| Date | Particulars | J.F. | ₹ (Dr.) | Date | Particulars | J.F. | ₹ (Cr.) |
|---|---|---|---|---|---|---|---|
| 2022 | 2022 | ||||||
| April 30 | To Cash A/c | 1,500 | April 30 | By Balance c/d | 1,500 | ||
| 1,500 | 1,500 | ||||||
| May 1 | To Balance b/d | 1,500 |
Trial Balance
as at 30 April 2022
| Heads of Accounts | L.F. | Debit Balance (₹) | Credit Balance (₹) |
|---|---|---|---|
| Cash A/c | 87,050 | ||
| Capital A/c | 1,00,000 | ||
| Purchases A/c | 13,000 | ||
| Garyson A/c | 4,000 | ||
| Sales A/c | 4,000 | ||
| Trade Expenses A/c | 2,000 | ||
| Discount Allowed A/c | 50 | ||
| Wages A/c | 700 | ||
| Discount Received A/c | 300 | ||
| Rent A/c | 1,500 | ||
| Total | 1,04,300 | 1,04,300 |
2. Solution
Journal entries of James for the month ended April 30, 2022
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| April 1 | Cash A/c Dr. | 2,000 | ||
| Stock of Goods A/c Dr. | 45,000 | |||
| Bank A/c Dr. | 20,000 | |||
| Aiden A/c Dr. | 3,500 | |||
| To Eli A/c | 2,500 | |||
| To Capital A/c | 68,000 | |||
| (Being opening balances brought forward) | ||||
| April 3 | Noah A/c Dr. | 10,000 | ||
| To Sales A/c | 10,000 | |||
| (Being goods sold on credit to Noah) | ||||
| April 5 | Cash A/c Dr. | 4,000 | ||
| To Sales A/c | 4,000 | |||
| (Being goods sold for cash) | ||||
| April 7 | Andrew A/c Dr. | 500 | ||
| To Sales A/c | 500 | |||
| (Being goods sold on credit to Andrew) | ||||
| April 8 | Purchases A/c Dr. | 1,500 | ||
| To Eli A/c | 1,500 | |||
| (Being goods purchased on credit from Eli) | ||||
| April 10 | Aiden A/c Dr. | 1,000 | ||
| To Sales A/c | 1,000 | |||
| (Being goods sold on credit to Aiden) | ||||
| April 13 | Wages A/c Dr. | 200 | ||
| To Cash A/c | 200 | |||
| (Being wages paid in cash) | ||||
| April 15 | Cash A/c Dr. | 6,000 | ||
| To Noah A/c | 6,000 | |||
| (Being cash received from Noah) | ||||
| April 15 | Bank A/c Dr. | 10,000 | ||
| To Cash A/c | 10,000 | |||
| (Being cash paid into bank) | ||||
| April 18 | Drawings A/c Dr. | 500 | ||
| To Cash A/c | 500 | |||
| (Being cash taken for private use) | ||||
| April 23 | Lucas A/c Dr. | 7,000 | ||
| To Sales A/c | 7,000 | |||
| (Being goods sold on credit to Lucas) | ||||
| April 24 | Purchases A/c Dr. | 6,500 | ||
| To Ryan A/c | 6,500 | |||
| (Being goods purchased on credit from Ryan) | ||||
| April 25 | Wages A/c Dr. | 300 | ||
| To Cash A/c | 300 | |||
| (Being wages paid in cash) | ||||
| April 30 | Cash A/c Dr. | 1,440 | ||
| To Sales A/c | 1,440 | |||
| (Being goods sold for cash) |
Cash Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 1 | To Opening Bal. | 2,000 | April 13 | By Wages A/c | 200 | ||
| April 5 | To Sales A/c | 4,000 | April 15 | By Bank A/c | 10,000 | ||
| April 15 | To Noah A/c | 6,000 | April 18 | By Drawings A/c | 500 | ||
| April 30 | To Sales A/c | 1,440 | April 25 | By Wages A/c | 300 | ||
| April 30 | By Balance c/d | 2,440 | |||||
| 13,440 | 13,440 | ||||||
| May 1 | To Balance b/d | 2,440 |
Bank Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 1 | To Opening Bal. | 20,000 | April 30 | By Balance c/d | 30,000 | ||
| April 15 | To Cash A/c | 10,000 | |||||
| 30,000 | 30,000 | ||||||
| May 1 | To Balance b/d | 30,000 |
Stock of Goods Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 1 | To Opening Bal. | 45,000 | April 30 | By Balance c/d | 45,000 | ||
| 45,000 | 45,000 | ||||||
| May 1 | To Balance b/d | 45,000 |
Aiden Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 1 | To Opening Bal. | 3,500 | April 30 | By Balance c/d | 4,500 | ||
| April 10 | To Sales A/c | 1,000 | |||||
| 4,500 | 4,500 | ||||||
| May 1 | To Balance b/d | 4,500 |
Eli Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 30 | To Balance c/d | 4,000 | April 1 | By Opening Bal. | 2,500 | ||
| April 8 | By Purchases A/c | 1,500 | |||||
| 4,000 | 4,000 | ||||||
| May 1 | By Balance b/d | 4,000 |
Noah Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 3 | To Sales A/c | 10,000 | April 15 | By Cash A/c | 6,000 | ||
| April 30 | To Balance c/d | 4,000 | |||||
| 10,000 | 10,000 | ||||||
| May 1 | By Balance b/d | 4,000 |
Andrew Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 7 | To Sales A/c | 500 | April 30 | By Balance c/d | 500 | ||
| 500 | 500 | ||||||
| May 1 | To Balance b/d | 500 |
Lucas Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 23 | To Sales A/c | 7,000 | April 30 | By Balance c/d | 7,000 | ||
| 7,000 | 7,000 | ||||||
| May 1 | To Balance b/d | 7,000 |
Ryan Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 24 | By Purchases A/c | 6,500 | |||||
| April 30 | To Balance c/d | 6,500 | |||||
| 6,500 | 6,500 | ||||||
| May 1 | By Balance b/d | 6,500 |
Capital Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 1 | By Opening Bal. | 68,000 | |||||
| April 30 | To Balance c/d | 68,000 | |||||
| 68,000 | 68,000 | ||||||
| May 1 | By Balance b/d | 68,000 |
Sales Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 3 | By Noah A/c | 10,000 | |||||
| April 5 | By Cash A/c | 4,000 | |||||
| April 7 | By Andrew A/c | 500 | |||||
| April 10 | By Aiden A/c | 1,000 | |||||
| April 23 | By Lucas A/c | 7,000 | |||||
| April 30 | By Cash A/c | 1,440 | |||||
| April 30 | To Balance c/d | 23,940 | |||||
| 23,940 | 23,940 | ||||||
| May 1 | By Balance b/d | 23,940 |
Purchases Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 8 | To Eli A/c | 1,500 | April 30 | By Balance c/d | 8,000 | ||
| April 24 | To Ryan A/c | 6,500 | |||||
| 8,000 | 8,000 | ||||||
| May 1 | To Balance b/d | 8,000 |
Wages Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 13 | To Cash A/c | 200 | April 30 | By Balance c/d | 500 | ||
| April 25 | To Cash A/c | 300 | |||||
| 500 | 500 | ||||||
| May 1 | To Balance b/d | 500 |
Drawings Account
| Date | Particulars | L.F. | Debit (₹) | Date | Particulars | L.F. | Credit (₹) |
| April 18 | To Cash A/c | 500 | April 30 | By Balance c/d | 500 | ||
| 500 | 500 | ||||||
| May 1 | To Balance b/d | 500 |
Trial Balance
As at April 30, 2022
| Heads of Accounts | L.F. | Debit Balance (₹) | Credit Balance (₹) |
| Cash | 2,440 | ||
| Bank | 30,000 | ||
| Stock of Goods | 45,000 | ||
| Aiden | 4,500 | ||
| Noah | 4,000 | ||
| Andrew | 500 | ||
| Lucas | 7,000 | ||
| Purchases | 8,000 | ||
| Wages | 500 | ||
| Drawings | 500 | ||
| Eli | 4,000 | ||
| Ryan | 6,500 | ||
| Capital | 68,000 | ||
| Sales | 23,940 | ||
| 102,440 | 102,440 |
3. Solution
Trial Balance
As at 31st March, 2022
| Heads of Accounts | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Opening Stock | 30,000 | ||
| Purchases | 80,000 | ||
| Sales Returns | 7,300 | ||
| Rent | 1,700 | ||
| Salaries | 5,800 | ||
| Goodwill | 800 | ||
| Drawings | 8,000 | ||
| Furniture | 6,400 | ||
| Machinery | 54,000 | ||
| Debtors | 64,000 | ||
| Bills Receivable | 4,200 | ||
| Cash in Hand | 9,000 | ||
| Interest on Overdraft | 1,000 | ||
| Discount received | 800 | ||
| Purchases Returns | 6,000 | ||
| Sales | 1,78,200 | ||
| Commission Received | 1,200 | ||
| Creditors | 9,000 | ||
| Bills Payable | 2,000 | ||
| Bank Overdraft | 15,000 | ||
| Capital | 60,000 | ||
| 272,200 | 272,200 |
4. Solution
Corrected Trial Balance
| Heads of Accounts | L.F. | Debit Balance (₹) | Credit Balance (₹) |
|---|---|---|---|
| Debtors | 7,580 | ||
| Bank Deposits | 2,750 | ||
| Discount Allowed | 40 | ||
| Drawings | 600 | ||
| Returns Inward | 450 | ||
| Rent | 360 | ||
| Salaries | 850 | ||
| Trade Expenses | 300 | ||
| Cash in Hand | 210 | ||
| Opening Stock | 2,450 | ||
| Purchases | 11,870 | ||
| Capital | 8,000 | ||
| Scrap Depreciation Recovered | 250 | ||
| Creditors | 1,250 | ||
| Returns Outward | 350 | ||
| Bank Overdraft | 1,570 | ||
| Sales | 13,690 | ||
| Bills Payable | 1,350 | ||
| Grant Received | 1,000 | ||
| TOTAL | 27,460 | 27,460 |
5. Solution
Trial Balance of David
As at 31st March, 2022
| Heads of Accounts | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Purchases | 20,00,000 | |
| Stock on 1st April, 2021 | 3,00,000 | |
| Sundry Expenses | 10,000 | |
| Leasehold Premises | 6,00,000 | |
| Freehold Premises | 19,00,000 | |
| Return Inwards | 20,000 | |
| Furniture and Fixtures | 4,00,000 | |
| Equipment | 10,00,000 | |
| Repairs to Equipment | 6,000 | |
| Depreciation | 84,000 | |
| Proprietor’s Withdrawals | 80,000 | |
| Sundry Debtors | 4,50,000 | |
| Bad debts | 20,000 | |
| Investments @ 10% | 5,50,000 | |
| Interest on Loan | 60,000 | |
| Petty Cash Account | 1,000 | |
| Balance at Bank | 39,000 | |
| Sales | 50,00,000 | |
| Sundry Creditors | 2,60,000 | |
| Interest on Investments | 40,000 | |
| Long-term Borrowings | 7,00,000 | |
| Loan from ICICI Bank | 8,20,000 | |
| Capital (Balancing figure) | 7,00,000 | |
| 75,20,000 | 75,20,000 |
Note: The “Stock on 31.3.2022 (not adjusted)” is not included in the Trial Balance since it is unadjusted.
6. Solution
Corrected Trial Balance
| Name of Accounts | L.F. | Debit Balance (₹) | Credit Balance (₹) |
|---|---|---|---|
| Cash in Hand | 5,000 | ||
| Machinery | 23,000 | ||
| Purchases | 50,000 | ||
| Sundry Debtors | 25,000 | ||
| Carriage Inward | 2,000 | ||
| Carriage Outward | 1,000 | ||
| Wages | 17,000 | ||
| Rent and Taxes | 5,000 | ||
| Sundry Creditors | 18,000 | ||
| Discount Allowed | 1,000 | ||
| Returns Outwards | 2,000 | ||
| Returns Inwards | 4,000 | ||
| Capital | 23,000 | ||
| Drawings | 5,000 | ||
| Bank Loan | 14,000 | ||
| Interest on Loan | 1,000 | ||
| Opening Stock | 30,000 | ||
| Sales | 1,10,000 | ||
| Discount Received | 2,000 | ||
| Total | 1,69,000 | 1,69,000 |
Extras
Additional questions and answers
1. What is a Trial Balance?
Answer : Trial Balance is a schedule of debit and credit totals or balances of all the Ledger accounts, drawn at any date, at periodic intervals or at the end of a financial period.
Q. On which side of the Trial Balance are assets recorded?
Answer : Assets such as Plant and Machinery, Furniture and Fixtures, Land and Building, Motor Car, Bills Receivable, Goodwill, Trademarks, Patents and Copyright, Cash in Hand, etc., have a debit balance and are shown in the debit column of a Trial Balance.
Q. On which side of the Trial Balance is capital recorded?
Answer : The Capital account shows a credit balance and is written on the credit side of the Trial Balance.
Q. On what date is a Trial Balance usually prepared?
Answer : A Trial Balance is usually prepared at the end of the accounting period, before the preparation of final accounts, and is prepared on a particular date which should be written on the top.
Q. What type of balance does the Returns Inward Account have?
Answer : The Returns Inward Account or Sales Return Account always has a debit balance and hence is shown in the debit column of a Trial Balance.
Q. State two characteristics of Trial Balance?
Answer : (i) A Trial Balance is just a statement, and not an account.
(ii) It contains the list of balances of all Ledger Accounts and Cash Book.
Q. What is the purpose of preparing a Trial Balance?
Answer : The purpose of preparing a Trial Balance is to ascertain the arithmetical accuracy of ledger accounts. If the sum of the debit and credit columns of the trial balance is equal, it is assumed that the posting to the ledger accounts is correct.
Q. Name two errors that cannot be detected by a Trial Balance?
Answer : (i) Error of Commission.
(ii) Error of Principle.
Q. What is an Error of Commission?
Answer : An Error of Commission occurs when the entries are made to the correct amount, on the appropriate side (debit or credit), but one or more entries are made to the wrong account of the correct type. For example, if fuel costs are incorrectly debited to the postage account (both expense accounts). This will not affect the totals.
Q. What is an Error of Omission?
Answer : An Error of Omission occurs when a transaction is completely omitted from the books of accounts, meaning it has not been recorded at all.
Q. What is an Error of Principle?
Answer : An Error of Principle arises when an entry is made that violates the fundamental principles of accounting, such as recording a capital expenditure as a revenue expenditure or vice versa.
Q. What happens if an account shows no balance in Trial Balance?
Answer : If an account shows no balance in the Trial Balance, it is not included in the Trial Balance since only accounts with balances are listed.
Q. Where is Opening Stock shown in the Trial Balance?
Answer : Opening Stock is shown on the debit side of the Trial Balance as it represents the value of goods unsold at the beginning of the accounting period.
Q. Explain the characteristics of a Trial Balance.
Answer : The characteristics or features of a Trial Balance are:
- It is just a statement, and not an account.
- It contains the list of balances of all Ledger Accounts and Cash Book.
- It is neither a part of the double-entry system nor does it appear in the actual books of accounts. It is usually prepared on a loose sheet of paper.
- It is prepared on a specific date.
- It checks the arithmetical accuracy of the Ledger.
- A tallied trial balance is not a conclusive proof of the accuracy of accounts.
Q. Describe the limitations of a Trial Balance.
Answer : The limitations of a Trial Balance are that it only enters the total of credits against the total of debits. The fact that a trial balance tallies provides only basic assurance that there are no arithmetical errors in the preparation of Ledger accounts. However, there are certain errors that cannot be detected through a trial balance, such as compensatory errors, errors of commission, errors of principle, errors of omission, and others.
Q. What errors cannot be detected by a Trial Balance?
Answer : The errors that cannot be detected by a Trial Balance are:
- Compensatory Errors, which arise due to excess debits or under-debits of accounts but are neutralized by excess credits or under-credits in the same account or other accounts.
- Error of Commission, which occurs when entries are made to the correct amount and on the appropriate side (debit or credit), but one or more entries are made to the wrong account of the correct type.
- Error of Principle, which occurs when entries are made to the correct amount and on the appropriate side (debit or credit), but the wrong type of account is used.
- Error of Omission, which occurs when a transaction is not recorded in the books of entry.
- Omission of an entry in the day book (Journal) or subsidiary book, where if a voucher is completely omitted, it will not affect the total of the trial balance.
- Posting the entry to the correct side but in a wrong account.
- Wrong amount entered in the day book, where if an incorrect amount is written initially, the error cannot be disclosed even though the totals of the trial balance agree.
Q. Explain the points to be remembered while preparing a Trial Balance.
Answer : The points to be remembered while preparing a Trial Balance are:
(1) The Ledger Accounts showing debit balances are shown in the debit column of a Trial Balance, and the Ledger Accounts showing credit balances are shown in the credit column of a Trial Balance.
(2) Accounts of assets such as Plant and Machinery, Furniture and Fixtures, Land and Building, Motor Car, Bills Receivable, Goodwill, Trademarks, Patents and Copyright, Cash in Hand, etc., have a debit balance and are shown in the debit column of a Trial Balance.
(3) Bank balance may be debit or credit. If the bank balance is debit, it is shown in the debit column of a trial balance. If it is credit, it is shown in the credit column of a Trial Balance. (4) Accounts of liabilities such as bank overdraft, bills payable, creditors, etc., have a credit balance and are shown in the credit column of a Trial Balance.
(5) Capital account shows a credit balance, as such it is written on the credit side of the Trial Balance.
(6) Drawings account shows a debit balance, as such it is written on the debit side of the Trial Balance.
(7) Purchases Account always has a debit balance which is shown in the debit column of a Trial Balance. Sales Account always has a credit balance which is shown in the credit column of a Trial Balance.
(8) Returns Inward Account or Sales Return Account always has a debit balance and hence is shown in the debit column of a Trial Balance. Returns Outward Account or Purchases Return Account always has a credit balance and hence is shown in the credit column of a Trial Balance.
(9) Accounts of incomes and gains have credit balances and are shown in the credit column of a Trial Balance.
(10) Accounts of expenses and losses have debit balances and are shown in the debit column of a Trial Balance.
(11) Opening Stock Account has a debit balance which is shown in the debit column of a Trial Balance.
Q. When does Closing Stock appear in a Trial Balance?
Answer : Closing Stock generally does not appear in the Trial Balance because, in most cases, it is brought into accounts at the time of preparing the Trading Account. However, in the following cases, Closing Stock will appear in the Trial Balance:
(i) If, before preparing the Trial Balance, Closing Stock is brought into accounts by adjusting it against purchases through an entry: Closing Stock A/c Dr. To Purchases A/c.
(ii) In case a Trial Balance is prepared after preparing the Trading Account.
(iii) In case a Trial Balance is prepared after passing adjustment entries.
Q. Describe the Balance Method of preparing a Trial Balance.
Answer : The Balance Method of preparing a Trial Balance involves the preparation of a statement or list in which balances of all the accounts, including cash and bank, are shown to check the arithmetical accuracy of the books. According to this method, a Trial Balance is prepared on the basis of balances of accounts. Each ledger account is balanced, and then the Trial Balance is prepared from the balances of ledger accounts instead of their debit and credit totals. It records only those ledger accounts which show debit and credit balances; if an account shows no balance, then that account is not included in the Trial Balance. It can be prepared only when all the ledger accounts are balanced. This method is simple, requires less work, and is mostly used.
Q. Explain the meaning and definition of Trial Balance along with its characteristics.
Answer : A Trial Balance is a statement prepared with the help of ledger balances, at the end of a financial year or at any other date, to find out whether the debit total agrees with the credit total. It is defined by William Pickles as “The statement prepared with the help of ledger balances, at the end of a financial year or at any other date, to find out whether debit total agrees with credit total, is called a Trial Balance.” J.R. Batliboi defines it as “Trial balance is a statement, prepared with the debit and credit balances of ledger accounts to test the arithmetical accuracy of the books.” Carter describes it as “Trial Balance is the list of debit and credit balances, taken out from ledger, including the cash and bank balances.” M.S. Gosav states, “The Substance of Accountancy,” that “Trial balance is a statement containing the balances of all ledger accounts, as at any given date, arranged in the form of debit and credit columns placed side by side and prepared with the object of checking the arithmetical accuracy of ledger postings.”
The characteristics of a Trial Balance are:
- It is just a statement, and not an account.
- It contains the list of balances of all Ledger Accounts and Cash Book.
- It is neither a part of the double-entry system nor does it appear in the actual books of accounts. It is usually prepared on a loose sheet of paper.
- It is prepared on a specific date.
- It checks the arithmetical accuracy of the Ledger.
- A tallied trial balance is not a conclusive proof of the accuracy of accounts.
Q. What are the functions of a Trial Balance?
Answer : The functions of a Trial Balance include:
- Ascertaining the arithmetical accuracy of ledger accounts: A trial balance provides a useful check upon the arithmetical accuracy of ledger accounts. If the sum of the debit and credit columns of the trial balance is equal, it is assumed that the posting to the ledger accounts is correct because for every debit, there is an equal credit.
- Completion of double entry: The agreement of the two sides of the Trial Balance is proof of the arithmetical accuracy of the books of accounts, though it is not conclusive proof of accuracy as certain errors might still exist. Its agreement proves, at least, that for every debit, an equal credit has been given.
- Statement of ledger account balances: It is a summarised statement of balances of accounts on a certain date, enabling one to know the details of assets, liabilities, expenses, losses, incomes, etc.
- Helps in the preparation of final accounts: A trial balance is used as a connecting link between the ledger and the final accounts, providing a basis for the preparation of Trading and Profit & Loss Account and a Balance Sheet.
- Helps to obtain a summary of the ledger accounts: A Trial Balance summarises all the ledger accounts, giving information about the assets, liabilities, income, and expenses, etc.
Q. Describe the format of a Trial Balance.
Answer : The format of a Trial Balance is as follows:
TRIAL BALANCE as at …….
| Heads of Accounts | L.F. | Debit Balance (₹) | Credit Balance (₹) |
|---|---|---|---|
| Total |
In this format, careful attention must be given to the following points:
(i) It is prepared on a particular date which should be written on the top.
(ii) In the first column, the name of all Ledger accounts are written. No account should be omitted, otherwise the Trial Balance will not agree.
(iii) In the second column, the Ledger Folio of the respective account must be mentioned in the respective column.
(iv) In the third column, the debit balance, if any, is written.
(v) In the fourth column, the credit balance is written.
(vi) The two columns are totalled at the end.
Q. Explain the various limitations of Trial Balance with examples.
Answer : The various limitations of Trial Balance, along with examples, are:
- Compensatory Errors: These are errors that arise due to excess debits or under-debits of accounts but are neutralized by excess credits or under-credits in the same account or other accounts. For example, excess posting of purchase amount by ₹10,000 neutralized by excess posting of a supplier’s account by ₹10,000. These types of errors cannot be disclosed by the trial balance even though the totals of the trial balance are agreed.
- Error of Commission: An error of commission occurs when the entries are made to the correct amount, on the appropriate side (debit or credit), but one or more entries are made to the wrong account of the correct type. For example, if fuel costs are incorrectly debited to the postage account (both expense accounts), this will not affect the totals.
- Error of Principle: An error of principle occurs when the entries are made to the correct amount, on the appropriate side (debit or credit), but the wrong type of account is used. For example, if postage (an expense account) is debited to stock (an asset account), this will not affect the totals.
- Error of Omission: An error of omission occurs when a transaction is not recorded in the books of entry. In such a case, the credits and debits for the transaction would balance, and omitting to record it would have no impact on the trial balance.
- Omission of an entry in the day book (Journal) or subsidiary book: If a voucher is completely omitted from being entered in a day book, then it will not affect the total of the trial balance. For example, a purchase bill was not entered in the purchases day book, neither shown in the purchases account nor posted in the creditor’s account, and therefore, it will not be shown in the trial balance.
- Posting the entry to the correct side but in a wrong account: If an entry is posted to the correct side but into a different account head, then also the total of the trial balance will not be affected. For example, an amount paid to Mr. Zavier, correctly debited in the day book to Mr. Zavier, but at the time of posting, the amount was posted into the account of Mr. Mickel on the debit side. In the trial balance, the balance of Mr. Mickel will appear instead of Mr. Zavier on the debit side.
- Wrong amount entered in the day book: While making the entry in the day book, if the wrong amount is written at the initial stage, then also the error cannot be disclosed through the totals of the trial balance, even if they agree. For example, the amount of purchase of ₹50,000 was written in the purchases day book as ₹5,000. In this case, the total of the trial balance will not be affected.
Q. Explain how a Trial Balance helps in the preparation of final accounts.
Answer : A Trial Balance helps in the preparation of final accounts in the following ways:
- It provides a summarised statement of balances of accounts on a certain date, enabling one to know the details of assets, liabilities, expenses, losses, incomes, etc.
- It acts as a connecting link between the ledger and the final accounts, providing a basis for the preparation of the Trading and Profit & Loss Account and the Balance Sheet.
- The balances from the Trial Balance are directly transferred to the respective accounts in the final accounts. For instance, the balances of expenses and incomes are transferred to the Trading and Profit & Loss Account, while the balances of assets and liabilities are used to prepare the Balance Sheet.
- It ensures that all ledger accounts are balanced and ready for use in the final accounts.
- It helps verify the arithmetical accuracy of the ledger postings before proceeding to the preparation of the final accounts.
25. Explain the procedure of preparing a Trial Balance by the Balance Method.
Answer : The procedure of preparing a Trial Balance by the Balance Method is as follows:
- Balancing Ledger Accounts : Each ledger account is balanced to determine whether it has a debit or credit balance. If an account does not have a balance (i.e., the debit and credit totals are equal), it is not included in the Trial Balance.
- Listing Balances : All ledger accounts showing debit balances are listed in the debit column of the Trial Balance, and all ledger accounts showing credit balances are listed in the credit column of the Trial Balance.
- Ensuring Completeness : Careful attention is given to ensure that no account is omitted. Omitting an account would result in the Trial Balance not agreeing.
- Totalling Columns : The debit and credit columns of the Trial Balance are totalled at the end. If the totals of both sides are equal, it is said that the Trial Balance is tallied.
- Preparing on a Specific Date : The Trial Balance is prepared on a particular date, which should be clearly mentioned at the top.
- Including Ledger Folio : In the second column of the Trial Balance, the Ledger Folio (L.F.) of the respective account must be mentioned.
- Writing Balances : In the third column, the debit balance, if any, is written, and in the fourth column, the credit balance is written.
Additional MCQs
1. What is a trial balance?
A. Statement
B. Account
C. Journal
D. Ledger
Answer: A. Statement
Q. What does a trial balance primarily check?
A. Arithmetical accuracy
B. Transaction completeness
C. Narrative details
D. Chronological order
Answer: A. Arithmetical accuracy
Q. Which of the following is not a characteristic of a trial balance?
A. It is just a statement
B. It appears in the actual books
C. It is prepared on a specific date
D. It lists all ledger balances
Answer: B. It appears in the actual books
Q. Which of the following is not a function of a trial balance?
A. Ascertaining arithmetic accuracy
B. Completing the double entry process
C. Recording all transactions
D. Summarising ledger balances
Answer: C. Recording all transactions
Q. A tallied trial balance conclusively proves the overall accuracy of accounts.
A. True
B. False
C. Partially true
D. Uncertain
Answer: B. False
Q. Which error cannot be detected by a trial balance?
A. Error of omission
B. Arithmetic error
C. Calculation error
D. Balancing error
Answer: A. Error of omission
Q. Which error is made when an entry is recorded with the correct amount and on the correct side but in the wrong account?
A. Error of omission
B. Error of commission
C. Error of principle
D. Compensatory error
Answer: B. Error of commission
Q. An error that cancels itself out by excess debits and credits in different accounts is known as a:
A. Error of principle
B. Error of omission
C. Compensatory error
D. Posting error
Answer: C. Compensatory error
Q. Which ledger accounts are omitted from the trial balance?
A. Accounts with a debit balance
B. Accounts with a credit balance
C. Accounts with no balance
D. All accounts are included
Answer: C. Accounts with no balance
Q. When is a trial balance typically prepared?
A. At the beginning of the accounting period
B. At the end of the accounting period
C. Only mid-year
D. Only annually
Answer: B. At the end of the accounting period
Q. Which account normally has a debit balance in a trial balance?
A. Capital
B. Drawings
C. Creditors
D. Sales
Answer: B. Drawings
Q. Which account typically has a credit balance?
A. Purchases
B. Drawings
C. Sales
D. Bad Debts
Answer: C. Sales
Q. How is a bank balance recorded in a trial balance?
A. Always in the debit column
B. Always in the credit column
C. Depending on whether it is a debit or credit balance
D. It is not included
Answer: C. Depending on whether it is a debit or credit balance
Q. Under normal circumstances, how is closing stock treated in the trial balance?
A. Always shown
B. Never shown
C. Shown only if adjusted
D. Shown in both columns
Answer: C. Shown only if adjusted
Q. What is the method called when a trial balance is prepared using the balances of ledger accounts?
A. Total method
B. Balance method
C. Adjustment method
D. Posting method
Answer: B. Balance method
Q. In the trial balance, which account is always shown on the debit side?
A. Capital account
B. Sales account
C. Purchases account
D. Discount Received account
Answer: C. Purchases account
Q. Which account is never included in the trial balance if its debit and credit are equal?
A. Account with a debit balance
B. Account with a credit balance
C. Account with no balance
D. Cash account
Answer: C. Account with no balance
Q. Which function of a trial balance ensures that every transaction is recorded in both aspects of the double entry system?
A. Summarising ledger balances
B. Ascertaining arithmetical accuracy
C. Completing double entry
D. Preparing final accounts
Answer: C. Completing double entry
Q. Which of the following is a limitation of the trial balance?
A. It checks for mathematical errors
B. It verifies all aspects of each transaction
C. It cannot detect compensatory errors
D. It summarises ledger balances
Answer: C. It cannot detect compensatory errors
Q. The error where the correct amount is recorded on the proper side but in an incorrect type of account is known as:
A. Error of omission
B. Error of commission
C. Error of principle
D. Posting error
Answer: C. Error of principle
Q. What is the primary purpose of preparing a trial balance?
A. To complete double entry
B. To summarise ledger balances
C. To ensure arithmetical accuracy
D. All of the above
Answer: D. All of the above
Q. From which book are transactions taken to prepare the trial balance?
A. Journal
B. Ledger
C. Day book
D. Cash book
Answer: B. Ledger
Q. A trial balance is prepared on a particular date rather than for a particular period because it is:
A. A summary of balances on that date
B. Limited to cash transactions
C. Only for credit transactions
D. Prepared for each individual transaction
Answer: A. A summary of balances on that date
Q. Which adjustment entry can cause closing stock to appear in the trial balance?
A. Adjusting against purchases
B. Adjusting against sales
C. Adjusting against expenses
D. Adjusting against income
Answer: A. Adjusting against purchases
Q. Which of the following is not a function of a trial balance?
A. Providing a basis for final accounts
B. Checking arithmetical accuracy
C. Highlighting errors in posting
D. Summarising ledger account balances
Answer: C. Highlighting errors in posting
Q. The agreement of the debit and credit totals in a trial balance indicates that:
A. Every transaction is recorded twice
B. Every debit has an equal credit
C. There are no errors in the books
D. Final accounts are error-free
Answer: B. Every debit has an equal credit
Q. What is a necessary condition before preparing a trial balance?
A. All journal entries must be verified
B. All ledger accounts must be balanced
C. The cash book must be completed
D. Invoices must be issued
Answer: B. All ledger accounts must be balanced
Q. Which of the following best describes the physical nature of a trial balance?
A. A formal account
B. A schedule
C. An actual ledger
D. A part of the double entry system
Answer: B. A schedule
Q. A tallied trial balance does not provide conclusive proof of which of the following?
A. Arithmetical accuracy
B. Accuracy of postings
C. Ledger balancing
D. Completion of double entry
Answer: B. Accuracy of postings
Q. Which type of error, involving the complete omission of a transaction from the records, is not revealed by the trial balance?
A. Arithmetic error
B. Error of omission
C. Calculation error
D. Balancing error
Answer: B. Error of omission
Q. In a trial balance, which account among the following is always shown on the credit side?
A. Cash account
B. Purchases account
C. Capital account
D. Drawings account
Answer: C. Capital account
Q. In the trial balance, which account among the following is always shown on the debit side?
A. Sales account
B. Returns Outward account
C. Drawings account
D. Creditors account
Answer: C. Drawings account
Q. Which of the following accounts can appear with either a debit or a credit balance?
A. Purchases account
B. Sales account
C. Bank account
D. Drawings account
Answer: C. Bank account
Q. What is the first step in preparing a trial balance by the balance method?
A. Listing all journal entries
B. Balancing each ledger account
C. Recording all transactions
D. Summing all debit entries
Answer: B. Balancing each ledger account
Q. The trial balance serves as a connecting link between the ledger and which of the following?
A. Cash Book
B. Trading and Profit & Loss Account
C. Journal
D. Subsidiary Book
Answer: B. Trading and Profit & Loss Account
Q. Which of the following is a function of the trial balance?
A. Recording transactions
B. Summarising ledger balances
C. Issuing invoices
D. Auditing bank statements
Answer: B. Summarising ledger balances
Q. Which document is prepared immediately after all ledger accounts are balanced?
A. Income statement
B. Trial balance
C. Balance sheet
D. Cash flow statement
Answer: B. Trial balance
Q. If a voucher is omitted from the day book, what is the impact on the trial balance?
A. The trial balance will not tally
B. It affects only one column
C. It has no impact
D. It doubles the totals
Answer: C. It has no impact
Q. Which adjustment causes closing stock to be recorded in the trial balance?
A. Adjustment against purchases
B. Adjustment against sales
C. Adjustment for bad debts
D. Adjustment for salaries
Answer: A. Adjustment against purchases
40. Which account always shows a debit balance in the trial balance?
A. Sales account
B. Capital account
C. Purchases account
D. Creditors account
Answer: C. Purchases account
