Trial Balance
Trial Balance is a statement which is prepared in a separate set of papers by taking up all the ledger accounts balances on a particular date in order to verify the arithmetical accuracy of the accounts in the ledger and putting the debits in one side and credits in another. No doubt it is a useful device and it helps to prepare the final account since it contains all the Personal, Real and Nominal accounts' Balances. As it is prepared by taking up the ledger accounts' balances, both debit and credit side of a trial balance must always be equal. In other words, it assures that (a) the balance (debit or credit) which is taken from different accounts are arithmetically correct; (b) the balances are taken and posted in the Trial Balance correctly rectify and (c) debits and credits of all transactions are recorded. One is to remember that Trial Balance is not a part of an account but a statement which is prepared to verify the arithmetical accuracy of ledger accounts.
Preparation of Trial Balance
At first, close each of the individual accounts, one by one, by taking up their respective differences which will either show a debit balance (i.e. if debit total is greater than the credit total) or a credit balance (i.e. if credit total is greater than the debit total). The debit balances of the accounts are to be written in debit column whereas credit balances of the accounts are to be written on the credit column. The total of both columns must be equal.
The following three methods may be followed at the time of its preparation viz. (1) Total Method; (2) Balance Method; and (3)
Compound Method.
(1) Total Method: Under this method, Trial Balance is prepared by taking up the total of both debits and credits of all ledger accounts.
(2) Balance Method: Under this method, Trial Balance is prepared by taking up the balance of each ledger account only.
(3) Compound Method: It is the combination of above two methods. It is also known as Total-Cum Balance Method.Example 4
Financial Statements
From the ledger prepared in Example 3 prepare trial balance using the methods discussed in next Section
Trial Balance is a statement which is prepared in a separate set of papers by taking up all the ledger accounts balances on a particular date in order to verify the arithmetical accuracy of the accounts in the ledger and putting the debits in one side and credits in another. No doubt it is a useful device and it helps to prepare the final account since it contains all the Personal, Real and Nominal accounts' Balances. As it is prepared by taking up the ledger accounts' balances, both debit and credit side of a trial balance must always be equal. In other words, it assures that (a) the balance (debit or credit) which is taken from different accounts are arithmetically correct; (b) the balances are taken and posted in the Trial Balance correctly rectify and (c) debits and credits of all transactions are recorded. One is to remember that Trial Balance is not a part of an account but a statement which is prepared to verify the arithmetical accuracy of ledger accounts.
Preparation of Trial Balance
At first, close each of the individual accounts, one by one, by taking up their respective differences which will either show a debit balance (i.e. if debit total is greater than the credit total) or a credit balance (i.e. if credit total is greater than the debit total). The debit balances of the accounts are to be written in debit column whereas credit balances of the accounts are to be written on the credit column. The total of both columns must be equal.
The following three methods may be followed at the time of its preparation viz. (1) Total Method; (2) Balance Method; and (3)
Compound Method.
(1) Total Method: Under this method, Trial Balance is prepared by taking up the total of both debits and credits of all ledger accounts.
(2) Balance Method: Under this method, Trial Balance is prepared by taking up the balance of each ledger account only.
(3) Compound Method: It is the combination of above two methods. It is also known as Total-Cum Balance Method.Example 4
Financial Statements
From the ledger prepared in Example 3 prepare trial balance using the methods discussed in next Section
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