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DEFINITION
A trial balance could be defined as a means of checking the
correctness of a set of accounts from the ledger. It proves the arithmetic accuracy of our
entries.
The following transactions of Big Brown, a sole trader, took
place from 1 January to 31 December 20X5.
• Started business with capital in cash K10 000
• Deposited K8,000 cash into the bank
• Paid for rentals by cheque K250
• Bought goods and paid by cheque K400
• Paid for stationery in cash K75
• Sold goods and received cash K600
• Bought goods on credit from suppliers K575
• Paid wages by cash K325
• Sold goods on credit to customers K780
• Withdrew K50 cash for personal use
• Paid electricity by cheque K25
Prepare the cash book, post to
the ledger and extract the trial balance.
ANALYSIS OF THE TRIAL BALANCE
• Dr Cr.
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1
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All assets
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1
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All liabilities
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2
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All expenses
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Dr.
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All losses
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2
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3
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Purchases
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3
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Sales
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4
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Sales returns
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4
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Purchases returns
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5
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Opening inventory
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5
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Capital
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6
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Drawings
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ADJUSTMENTS
- Closing inventory, Accruals and
Prepayments do not appear in trial balance because they come as
adjustment.
- Adjustments will always affect two
books of final accounts, thus Trading, profit and loss and Balance
Sheet. In one case the figure is added and in another it is subtracted.
CHAPTER SUMMARY
i.
A trial
balance provides reassurance that double entry book keeping has been done
correctly.
ii.
A trial
balance is just a memorandum statement; it is not part of double entry
iii.
A trial
balance is the first step in the preparation of financial statements, i.e.
Income Statement & Balance Sheet.
iv.
A trial
balance may have equal totals on debit and credit side; however, it does not
reveal all possible errors.
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