Trial Balance

Types of Trial Balance and Preparation of Trial Balance:

 

Trial Balance is a summary of all accounts with their respective closing balances at the year's end. Here, the total of debits will match the total of credits. There are three types of trial balances:

1.    Unadjusted -: The unadjusted trial balance is prepared in real-time means before adjusting journal entries based on daily transactions.

2.    Adjusted -: It is prepared based on final balances of all accounts means after adjusting entries and the ledger is balanced.

3.    Post Closing -: This type of trial balance reflects accounts after the closing entries have been applied.

 

Accounting is based on a double-entry system means every transaction has one credit side and one debit side. For example. Cash deposit in bank a/c, here the journal entry would be written as

 

Bank A/c ---------------------- Dr.

 

To Cash (Cr.)

 

In trial Balance, all the assets are recorded on the debit side and all the liabilities & incomes are recorded on the credit side. It shows that the double entry system has been complied.

 

We can prepare the trial balance in two ways:

1.    Total method: - The total of the debit and credit sides of each ledger account is shown in the debit and credit columns of the trial balance.

2.    Balanced method: - In this method, each ledger account’s final debit and credit balance is shown in the trial balance. 

 

In the preparation of the trial balance, we take the entries from the general ledger which were recorded initially in the journal.

There are the following steps to be taken in preparation for the trial balance:

• First close all ledger accounts including cash and bank books.

• Match each ledger account with total debits and total credits.

• Prepare a table of three columns with account name, debit and credit details and put the relevant information in these columns.

• Now, evaluate the debit and credit columns in the table and if any discrepancy is found, identify the error and rectify it.

• If the amount of the debit and credit columns match, the trial balance is considered correct.

 

Example of trial balance

 

Account heads	Total (Dr.)	Total (Cr.)
Capital		100000
Cash	101000
Sales		17000
Purchase	3000
Salaries	2000
Drawings	2000
Furniture	9000
Total	117000	117000