How To Prepare Trial Balance Sheet
A trial balance sheet often referred to as trial balance can be defined as a list of debit and credit balances which are extracted from the ledger. The main objective of preparing a trial balance sheet is examine the arithmetical accuracy of the double entry bookkeeping.
This article will educate us on how to prepare trial balance sheet, the steps to follow, and the rules guiding the preparation of trial balance.
There are two steps to follow when preparing a trial balance sheet.
Firstly, the transaction of the accounts are recorded in the journal and also in the general ledger. And the next step which is the second is preparing a trial balance.
Given below are the steps on how to prepare trial balance sheet:
- To prepare a trial balance, it is required to close all the ledger account, cash book and bank book first. Ledger account is supposed to be balanced, this means that the entries of both debit and credit side should be equal
- Three column worksheet is opened which includes column for account name, debit (Dr.) and credit (Cr.) details
- The columns should be filled with correct details
- Both the debit and credit columns are evaluated. Ideally, an error-free trail balance means the amount on both columns are equal.
- Once both the amount match, the trial balance is closed, if any errors are found, then it has to be identified and corrected.
Reasons why errors occur in the trial balance sheet
- Mistake while moving the balance amount on the ledger to trial balance
- Error while balancing an account
- When a wrong amount is posted in the account
- When an entry is made in the wrong column, when an item to be debited is credited and when an item to be credited is been debited.
- Mistake made in the posting to the journal proper.
- Entering a transaction twice on the same side of the trial balance.
- Error of addition in a side or both sides of the trial balance.
Rules for preparing trial balance sheet
Trial balance is very important in the accounting circle, preparing a trial balance is one of the core duties of an accountant. Therefore, whenever an accountant or a bookkeeper is preparing a trial balance, he/she should keep in mind the following rules:
The debit column of the trial balance contains balances of the accounts such as:
- Assets
- Expense account
- Drawing account
- Cash balance
- Bank balance
- Any losses
2. The credit column of the trial balance contains balances such as:
- Liabilities
- Income accounts
- Capital account
- Profits
In summary, the rules guiding how to prepare trial balance are;
- All assets must be debited.
- All liabilities must be credited.
- All income must be credited.
- All expenses must be debited.
It is important to note that the trial balance is not part of the double entry bookkeeping system, it is simply a list of balances. If the ledger accounts are balanced on a monthly bases, then the trial balance should be prepared at the end of each month.
The trial balance sheet should appear with a heading like "trial balance" along with the date that it was prepared as shown below;
If the debit side of the trial balance has a larger amount of money than the credit side, then that account is said to have a debit balance and the difference is recorded in the debit column of the trial balance. Likewise, If the credit side of the trial balance has a larger amount of money than the debit side, then that account is said to have a credit balance and the difference is recorded in the credit column of the trial balance.
The amount on the debit and credit sides are totalled, if there is an agreement between the totals, it shows that the double entry bookkeeping is correct.
The trial balance sheet should appear with a heading like "trial balance" along with the date that it was prepared as shown below;
If the debit side of the trial balance has a larger amount of money than the credit side, then that account is said to have a debit balance and the difference is recorded in the debit column of the trial balance. Likewise, If the credit side of the trial balance has a larger amount of money than the debit side, then that account is said to have a credit balance and the difference is recorded in the credit column of the trial balance.
The amount on the debit and credit sides are totalled, if there is an agreement between the totals, it shows that the double entry bookkeeping is correct.
If the trial balance sheet balances
When a trial balance is balanced, it simply means that the total of the debit and credit balances are equal. It doesn't mean that the trial balance is without errors.
For a better understanding of all the illustrations above, a working example of trial balance will be of great help
EXAMPLE:
Trial Balance Problems and Solutions
For a better understanding of all the illustrations above, a working example of trial balance will be of great help
EXAMPLE:
Prepare Trial Balance as on 31.03.2012 from the following balances of Ms. Maliha Afzal:
Drawings Rs. 74,800
Purchases Rs. 295,700
Stock (1.04.2011) Rs. 30,000
Bills receivable Rs. 52,500
Capital Rs. 250,000
Furniture Rs. 33,000
Discount allowed Rs. 950
Sales Rs. 335,350
Rent Rs. 72,500
Freight Rs. 3,500
Printing charges Rs. 1,500
Sundry creditors 75,000
Insurance Rs. 2,700
Sundry expenses Rs. 21,000
Discount received Rs. 1,000
Bank loan Rs. 120,000
Stock (31.03.2012) Rs. 17,000
Income tax Rs. 9,500
Machinery Rs. 215,400
Bills payable Rs. 31,700
ANSWER
These are the simple steps on how to prepare trial balance sheet, I will be waiting at the comment section for your questions and opinions
