Function of the Trial Balance
It necessary, from time to time, to check the General Ledger for accuracy. The process of drawing up a trial balance checks the arithmetic accuracy of the general ledger and whether all postings to the ledger observed the rules of double-entry bookkeeping.
This is usually done on a monthly basis but the time interval between this checking procedure is arbitrary. It depends on the policies and procedures of the business organisation.
The trial balance is a list of ledger account balances prepared on a particular date.
Preparation of the Trial Balance
The procedure for preparing a trial balance is:
1. Write the heading of the trial balance
2. Calculate the balance of each ledger account
3. List each account in the ledger and put the balance in the debit or credit column as appropriate
4. Total the debit and credit columns. The column totals must be equal.
Step 1 - Write the heading of the trial balance
Example heading:
LOT
OF FUN INC.
Trial Balance as at 31 January 1999
Account
Debit Credit
$ $
Step 2 - Calculate the balance of each ledger account
The end of month balance for each account in the ledger must be calculated. In the example below, the Cash at Bank A/c has an opening debit balance of $5342.50. During the month funds of $2514.00 were banked and payments of $3265.50 were made leaving a month end debit balance of $4591.00. The "Balance" column in the ledger exists to help keep a running balance of the account as each posting is made to the account.
Example, Cash at Bank A/c:
|
Account: |
Cash at Bank A/c: |
||||
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Date |
Particulars |
Debit |
Credit |
Balance |
Type |
|
1/1/99 |
Balance b/d |
5342.50 |
|
5342.50 |
Dr |
|
31/1/99 |
Cash Payments Journal |
|
3265.50 |
2077.00 |
Dr |
|
31/1/99 |
Cash Receipts Journal |
2514.00 |
|
4591.00 |
Dr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Some accounts in the ledger may have many postings some may have no postings during the month.
Step 3 - List each account in the ledger and put the balance in the debit or credit column as appropriate
On the document that you have headed "Trial Balance" in Step 1 above, make a list of every account in the ledger. Then write the month end balance of the account in the appropriate column. Be careful not to place the account balance in the wrong column. This is often a cause of error and the reason why the trial balance does not balance. Also ensure that you do miss any accounts in the ledger.
As this process unfolds your document will resemble the example below although there may be many more accounts:
LOT
OF FUN INC.
Trial Balance as at 31 January 1999
Account
Debit Credit
$ $
Accumulated Depreciation on Office Equipment 975.00
Cash at Bank 1750.45
Clothing Stock 1,945.00
Creditors 1138.60
Debtors 243.00
Accumulated Members Funds 7238.85
Office Equipment at Cost 5,410.00
Membership Fees 3476.00
Salaries 3258.00
Telephone 439.00
Postage 58.00
Bank Charges
13.50
Competition Fees
288.50
Totals
13,116.95 13,116.95
Step 4 - Total the debit and credit columns. The column totals must be equal.
In the above example both the debit and credit columns have been totalled and agree at $13,116.95.
Trial Balance Errors
Although a trial balance may "balance" it does not follow that there are no errors. There may have been incorrect amounts entered on both sides of the ledger. There may also have been entries to wrong Accounts but on the right side. Furthermore it is possible that transactions have been entirely omitted.
Therefore some degree of comfort is afforded when both sides balance but there is no guarantee of correctness.