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Trial Balance
What is Trial Balance?
TrialBalanceisthelistofallthebalancesappearingintheledgeraccountsandcashbookatanygiven date. Thebalancesintheledgeraccountmaybeeitheradebitbalanceoracreditbalance.Thedebitbalances areenteredinonecolumnandcreditbalancesinanother. Whentotaldebitsareequaltototalcredits,itissaidthatthetrialbalanceisbalanced.Balancedtrial balanceisonlyanindicationthatthereisanarithmeticalaccuracyofaccounts.Thereisnoguaranteethat therearenoerrors,oncetrialbalanceistallied.

Characteristics
Itisastatementoralist. Itisasummaryofallaccounts,withdebitandcreditbalances. Thetotalofdebitbalancesandcreditbalancesmustbeequal. Itistheonlybaseforpreparationoffinalaccounts. Itcanbepreparedatanytime.

Advantages
Preparationoffinalaccountsbecomeseasy. Onecanrelyontheresultsderivedoutoftrialbalance,whenthetotalofdebitsisequaltothetotal ofcredits. Someaccountingflawsinrespectofpostingscan,easily,bedetectedbypreparingtrialbalance. Theworkofanaccountantbecomeseasyforascertainingtheprofitabilityandfinancialposition withthepreparationoftrialbalance. AccountswithDebitBalances Assets,Expenses,Loss,Drawing 1. AssetaccountsLandaccount,buildingaccount,machineryaccount,andfurnitureaccount,

debtorsaccount,stockaccount,billsreceivableetc 2. Expense&LossaccountsSalariesaccount,wagesaccount,rentaccount,carriageaccount, discountaccount,baddebtsaccount,depreciationaccount,purchasesaccount,returninward account(salesreturnaccount)etc. 3. Drawingaccount AccountswithCreditBalances Liability,Income,Gain,Capital 1. LiabilitiesaccountsCreditorsaccount,loanaccount,mortgageaccount,billspayableaccount, bankoverdraftaccount,alltypesofreservesandfundsaccounts. 2. Income&GainaccountsInterestrealizedaccount,rentcollectedaccount,discountreceived account,salesaccount,returnoutwardaccount(purchasereturnaccount)etc. 3. Capitalaccount

Trial Balance Errors


1. ErrorsofOmission Theerrorscommittedbynotrecordingatransactioneitherinthebookoforiginalentryor intheledgerbookareerrorsofomission.Suchanomissionmaybeeithercompleteor partial. CompleteOmissionCompleteomissiontakesplaceifatransactionisnotrecordedinthe journalatall.Forexample,goodssoldtoJohnfor$10,000werenotrecordedinthesales bookatall.Acompleteomissionoftransactionmayoccurduetomanyreasonssuchas salesinvoicemisplacedorlost. PartialOmissionPartialomissionoccursifafinancialtransactionisrecordedonly partially.Forexample,partialerrorofomissionoccursifgoodssoldtoJohnfor$4000is recordedinsalesbookbutfailedtobepostedinJohn'saccount. 2. ErrorsofCommission Theerrorswhicharecommittedwhilerecordingorpostingatransactionarecallederrors ofcommission.Errorsofcommissionmaytakeplaceeitherinthejournalorinthe subsidiarybooks,orintheledger.Sucherrorsincludepostingwrongamounts,postingon wrongsideofaccounts,wrongtotalingorcarryingforward,andwrongbalancing.For example,ifpurchaseofgoodsfor$10,000isenteredas$1000inthejournalorinthe ledger,sucherroriscallederrorsofcommission. 3. ErrorsofDuplication Errorsofduplicationarethoseerrorswhicharisebecauseofdoublerecording.Double postingofatransactionfromjournalorsubsidiarybookstoledgeralsocreatesucherrors. Forexample,goodssoldtoJohn,butthistransactioniswronglyenteredtwiceormorein thesalesbookorwronglypostedtwiceormoreinJohn'saccountthenitiscalledthe errorsofduplication. 4. ErrorsofPrinciple Errorsofprinciplearethoseerrorswhichoccurbyviolatingtheprinciplesofaccounting. Errorsofprinciplemayoccurduetowrongallocationbetweencapitalandrevenue expenditure,orwrongvaluationofassets.Forexample,debitingthewageaccountinstead

ofmachineryaccountforthewagepaidtothemechanicsusedfortheinstallationof machineanddebitingthecustomer'saccountinsteadofcashaccountforthecashsales made.Errorsofprinciplemayalsooccurduetowrongvaluationofassetsbyhigherlevel staff. Incorrectprovisionfordepreciation,baddebtsordoubtfuldebts. 5. CompensatingErrors Compensatingerrorsrefertotwoormoreerrorswhichmutuallycompensatetheeffects ofoneanother.Ifoneerrorbalancestheeffectofanothererror,thenthetwoerrorare calledcompensatingerrors.Forexample,goodssoldfor$5000,butwronglypostedtothe customer'saccountas$500.Similarly,goodspurchasedfor$5000,butbychance, wronglypostedtothesupplier'saccountas$500.Theerrorsinthepersonalaccountare compensatedbyeachother,as$4500shortonthedebitsideofthecustomer'saccount andonthecreditsideofthesupplier'saccount.

Disagreement of Trial Balance


ReasonsErrorofomissionorErrorofcommission Gothroughthetrialbalancetofindouttheerrors. Checkthetotaloftrialbalancecarefully. Seewhetherbalancesofallledgeraccountsareincludedinthetrialbalanceandtheyareplaced intherightcolumns. Checkthebalanceofledgeraccountsandseetheyarecorrectlydrawnout.

Suspense Account
Unlessthedifferenceinthetrialbalanceisquicklysettled,itisusualtoputthedifferencetoanaccount calledsuspenseaccountinordertobalancethetrialbalance.Ifthedebitsideisshort,suspenseaccount willbedebitedandifthecreditsideisshort,suspendaccountwillbecreditedsaying"differenceintrial balance".Mistakeswhichdonotaffectthetrialbalancearenotenteredthroughsuspenseaccount.When allthemistakeshavebeencorrected,thesuspenseaccountwillshowanilbalance.

**LeaseHoldPremiseisanasset Theaccountsarelistedintheordertheyappearintheledgerassets,liabilities,capital,drawing, revenue&expense.