Basic Online Bookkeeping & Accounting Guide » k. Trial Balance

Trial Balance: What If It Doesn’t Balance

slang — Fri, 26 Oct 2007 03:57:50 +0000

In the event that your trial balance doesn’t balance, go through the following bookkeeping tips/steps in the suggested order to ensure that the error can be detected soonest possible:

Find out the exact amount of your error: by how much are you out of balance?
Is the error $10,$100 or $1,000? You probably failed to carry when adding or to borrow when subtracting or you may have made a slide error in posting.
Look at your debits and credits. Is there an entry exactly equal to your discrepancy?
Does the amoun of error divide evenly by 2? Look for a duplicate debit or a duplicate credit postin where there should be one of each. A debit may have been posted as a credit or vice versa
Does your out-of-balance number divide evenly by 9? Look for a transposition error. At this point, most erors have been located.
Add the trial balance columns again to check for accuracy. Next, recheck the addition while looking for a misread number. Sometimes a 1 is taken for a 7 or a carelessly written 3 or 5 may have fooled you.
Compare listing on the trial balance with each ledger account balance
Recalculate each ledger account balance.
Trace each ledger posting back to its place in the journal.Check off each number in the ledger and in the journal as you verify it. Then look for numbers with no check mark.
Verify that journal debits equal the journal credits

Trial Balance–Its Limitation:Errors That Cannot Be Revealed By The Trial Balance (Part2of2)

slang — Thu, 25 Oct 2007 15:14:55 +0000

A Trial Balance that balances DOES not necessarily prove that all the transactions have been recorded or that the accounting process is error-free.

Numerous errors or mistakes can exist even though the trial balance totals are in agreement. This can be categorized in two parts namely:

Errors that CAN BE REVEALED by the Trial Balance and (Part1)

Errors that CANNOT BE REVEALED by the Trial Balance(Part2)

(A) ERRORS OF OMISSION

A transaction is totally omitted from the books so that there is no debit and credit entry of the transaction for example payment of $3,000 were not recorded.

(B) ERRORS OF COMMISSION

An entry may be posted to the correct side of the ledger but to the wrong account for example- payment of $1,500 cash by customer Mr A is wrongly posted to the account of another customer Mr B.

An entry is made in the wrong class of account. This can occur when an expense is treated as an asset or vice versa for example- rental of $1,000 was debited to Premises Account.
This is a very serious error as it can greatly distort the accounting profit.

(D) COMPLETE REVERSALOF ENTRIES

An account that should be debited is credited and vice versa for example- a cheque of $2500 received from Mr A was debited to the account of Mr A and credited to the Bank Account.

(E) COMPENSATING ERRORS

Errors on one side of the ledger are compensated by errors of the same amount on the other side for example- the Purchases Account and Sales Account were both overcast by $2,300

(F) ERRORS OF ORIGINAL ENTRY

The original figure may be incorrectly entered although the correct double-entry principle has been observed using this incorrect figure for example credit sales of $9,800 to Mr A were recorded in the Sales Account and Mr A’s account as $8,900.

Trial Balance–Its Limitation:Errors That Can Be Revealed By The Trial Balance (Part1 of 2)

slang — Thu, 25 Oct 2007 15:01:23 +0000

A Trial Balance that balances DOES not necessarily prove that all the transactions have been recorded or that the accounting process is error-free.

Numerous errors or mistakes can exist even though the trial balance totals are in agreement. This can be categorized in two parts namely:

Errors that CAN BE REVEALED by the Trial Balance and (Part1)

Errors that CANNOT BE REVEALED by the Trial Balance(Part2)

Errors That CAN BE REVEALED by the Trial Balance are:

(A) ERRORS IN CALCULATION

· this is caused by any miscalculation of the trial balance totals or

· the net account balances but the Trial Balance will not balance – for example an error in the calculation of the cash balance, causing the trial balance totals not to balance.

(B) ERRORS OF OMMISSION OF ONE ENTRY

· Omission of either the debit or credit entry of a transaction will cause the total of the Trial Balance not to agree for example a cheque of $1,500 received for services rendered was ONLY debited to the Bank Account and the omission to post the credit entry ( sales)

· Entry into the wrong side of an account will cause one side of the ledger to total more than the other for example a cheque of $1,000 paid to Mr A was credited instead of debited to his account.

(F) ERRORS IN AMOUNT

· If the debit entry of a transaction differs in amount with the credit ery, the Trial Balance will not balance for example -cash $2,340 received from Mr. A was debited to the Cash Account as $2,340 and credited to the account of Mr A as $2,304

Trial Balance & Its Preparation

slang — Thu, 25 Oct 2007 14:31:59 +0000

The following are the steps taken in preparing a Trial Balance;

Determine the balance of each account in the ledger and Cash Book;
List the account title and their balances;
Total the debit and credit balances and
Prove their equality

Append below a question on completing a simple Trial Balance where all the balances are given:-

Question:

Append below is the following balances extracted from the books of A Ltd on 31 December 2006 :-

	Credit		Debit
Bank overdraft	7,000	Fixtures	31,500
Capital (01/01/06)	90,000	Motor Vehicles	20,800
Creditors	15,200	Debtors	24,000
Profit for the year	58,800	Cash	500
Loan	35,000

The accumulated depreciation figures were:Motor vehicle $ 6,100Fixtures $12,200Question: Complete the trial balance of A Ltd as at 31/12/2006.

Solution: Trial Balance Of A Ltd As At 31 December 2006

	Debit	Credit
Premises	120,000
Creditors		15,200
Fixtures	31,500
Overdraft		7000
Motor Vehicles	20,800
Capital		90,000
Motor Vehicles – depreciation		6,100
Stock	2,700
Prepayments	750
Accruals		250
Loan		3,500
Fixtures-depreciation		12,200
Profit & Loss Account		58,800
Total ( DEBIT = CREDIT)	224,550	224,550

Trial Balance And Its Purpose/Role

slang — Thu, 25 Oct 2007 14:23:14 +0000

A Trial Balance is a list of debit and credit balances extracted from the accounts in the ledger at a particular date.

An account has a debit balance when its debit total exceeds its credit total
Assets, expenses and drawings accounts have debit balance.

An account has a credit balance when its credit total exceeds its debit total
Liability, capital and revenue accounts have credit balances.

Purpose of Trial Balance

The main purpose of preparing a Trial Balance is to prove the mathematical equality of debits and credits.

The rationale for the balancing of the debit and credit in the Trial Balance is in compliance with the double-entry system of recording, if a debit and a credit entry have been made for each transaction, the total of the debits should be equal to the total of the credits in the recording process. And naturally, when ALL the accounts are balanced and compared, the TOTAL of the DEBIT balances should equal to the TOTAL of the CREDIT balances.

Other Salient Points:

It is prepared in each financial period as a summary of the closing of the previous ledger which proves the arithmetic accuracy of the ledger entry.

In bookkeeping, this is a useful tool for checking the accounting entries prior to doing the period-end processing.

Trial Balance reflects all the activity for an account or accounts within a selected date range. It shows the balance of the account at the beginning of the date range, the activity within the date range, and the balance at the end of the date range.

Trial Balance

slang — Thu, 18 Oct 2007 10:20:11 +0000

As earlier explained, first the recording of all the individual business transactions into the journal and then post into ledgers accounts vide the chart of accounts. The final output is then the trial balance which is explained in details:-

Definition Or What is A Trial Balance

A list/statement/worksheet of all the account balances of the general ledger at a particular point in time from which the Income Statement and Balance Sheet of a business is drawn up.

It is prepared in each financial period as a summary of the closing of the previous ledger which proves the arithmetic accuracy of the ledger entry.

In bookkeeping, this is a useful tool for checking the accounting entries prior to doing the period-end processing.

Trial Balance reflects all the activity for an account or accounts within a selected date range. It shows the balance of the account at the beginning of the date range, the activity within the date range, and the balance at the end of the date range.

Illustration:

Append below is the following balances extracted from the books of A Ltd on 31 December 2006

	Credit		Debit
Bank overdraft	7,000	Fixtures	31,500
Capital (01/01/06)	90,000	Motor Vehicles	20,800
Creditors	15,200	Debtors	24,000
Profit for the year	58,800	Cash	500
Loan	35,000

The accumulated depreciation figures were: Motor vehicle $ 6,100

Fixtures $12,200

Question:

Complete the trial balance of A Ltdas at 31/12/2006.

Solution:

Trial Balance Of A Ltd As At 31 December 2006

	Debit	Credit
Premises	120,000
Creditors		15,200
Fixtures	31,500
Overdraft		7000
Motor Vehicles	20,800
Capital		90,000
Motor Vehicles – depreciation		6,100
Stock	2,700
Prepayments	750
Accruals		250
Loan		3,500
Fixtures-depreciation		12,200
Profit & Loss Account		58,800
Total ( DEBIT = CREDIT)	224,550	224,550