PRACTICAL ACCOUNTING
THE TRIAL BALANCE
CHRISTOPHER MONGROO
The Accounting Cycle
The accounting cycle are the steps involved in
accounting for all the business transactions during
the accounting period
Step 1 – Identify and analyze transactions /
source documents
Step 2 – Record transactions in journals / original
entry
Step 3 – Post journals to the general ledgers /
double entry
The Accounting Cycle
Step 4 – Prepare an unadjusted trial balance for
arithmetical accuracy
Step 5 – Prepare adjusting journal entries and
post to the general ledger
Step 6 – Prepare an adjusted trial balance
Step 7 – Prepare financial statements
Trial Balance
What is a Trial Balance?
A list of account titles and their balances in the
books on a specific date, shown in debit and
credit columns i.e. a list of balances on the
books
Trial Balance
List of account titles and their balances
Taken from the respective ledgers
Total Debit = Total Credit
Essential stage prior to preparation of the
financial statements
Arithmetical accuracy of double-entry
Trial Balance
Uses of the trial balance
Check that books ‘balance’
(Debits=Credits)
Identify any errors
Basis of preparing FS
Trial Balance
Balances from the ledger will be summarized
on the Trial Balance (TB)
Assets – Debits balances (DR)
Liabilities – Credit balances (CR)
Capital/Equity – Credit balances (CR)
Income/Sales – Credit balances (CR)
Expenses – Debit balances (DR)
Drawings – Debit balances (DR)
Trial Balance
Bank A/C
Date Details $ Date Details $
1-Mar-19 Bal b/d 10,000 25-Mar-19 Purchases 5,000
25-Mar-19 Sales 3,000
31-Mar-19 Bal c/d 8,000
13,000 13,000
1-Apr-19 Bal b/d 8,000
Trial Balance
Sales A/C
Date Details $ Date Details $
3-Mar-19 Cash 1,500
5,500 11-Mar-19 Bank 2,800
Transfer to the
Trading Account 22-Mar-19 Debtor 1,200
5,500 5,500
Trial Balance - sample
New Millenium Trading
Trial Balance
As at 30th June 2017
Account Title Debit Credit
Capital 80,000
Cash 16,174
Bank 39,000
Purchases 18,200
Creditor - J. Paul 680
Motor Van 35,000
Equipment 28,100
Sales 31,500
Stationery 275
Return Inwards 141
Returns Outwards 80
Advertising 470
Debtor - R. Smith 1,000
Loan 29,000
Wages 2,900
141,260 141,260
Trial Balance
Prepare the Trial Balance with the following information:
• Capital - $55,000
• Cash in Hand - $1,500
• Cash at Bank - $32,000
• Motor Vehicle - $81,000
• Loan - $76,000
• Sales - $58,500
• Purchases - $27,800
• Return Inwards - $500
• Return Outwards - $1,300
• Accounts Receivable - $10,000
• Accounts Payable - $4,800
• Rent expense - $36,000
• Telephone expenses - $800
• Closing stock (inventory) - $6,000
New Millenium Trading
Trial Balance
As at 30 June 2020
Account Title Debit Credit
Capital 55,000
Cash in Hand 1,500
Cash at Bank 32,000
Motor Vehicle 81,000
Loan 76,000
Sales 58,500
Purchases 27,800
Returned Inwards 500
Returned Outwards 1,300
Accounts Receivable 10,000
Accounts Payable 4,800
Rent expense 36,000
Telephone expense 800
Stock 6,000
195,600 195,600
-
Trial Balance
Errors not disclosed on the trial balance
Errors can still exist even if the Trial Balance is
balanced
As such, the TB will not be able to detect ALL
errors
Trial Balance
Errors not disclosed on the trial balance
1) Error of omission – entire transaction left
out
2) Error of commission – posted to wrong a/c
3) Error of principle - wrong type of account
(expense vs asset)
Trial Balance
Errors not disclosed on the trial balance
4) Complete reversal of entries – debits and
credits mixed up
5) Error of original entry – wrong amount
recorded (e.g. $1,200 vs $2,100)
6) Compensating errors – shortage or overage
on both sides cancelling out each other (an error
that offsets another accounting error)
Adjusted Trial Balance
TB will be adjusted if errors were found. The
adjusted trial balance, along with other
financial information will be used to prepare
the financial statements:
Statement of Comprehensive Income –
Trading and P&L Account
Statement of Financial Position – Balance
Sheet
Adjusted Trial Balance
How to use the Trial Balance to prepare
financial statements:
Classify each account title and determine
nature i.e. asset, liability, income, expenses
etc.
A, L , C is associated with the Balance Sheet
I & E is associated with the Trading and P&L
a/c
Other Accounting terminology
Carriage Inwards – transportation cost of
goods into the business
Carriage Outwards – transportation cost of
goods to the customers of a business
Cost of Goods Sold – cost of goods sold to
customers during an accounting period
Other Accounting terminology
Accounts Receivable – money owed to the
business (you) from its debtors
Accounts Payable – money owed by the
business (you) to its creditors
Inventory (stock) – referred to unsold goods as
at period end
Summary
• What is a Trial Balance – definition and
importance
• Nature of different accounts – assets,
liabilities, capital, income, expenses,
drawings
• Examples – trial balance extract
• Errors not detected on TB – 6 scenarios
• Other key accounting terminology – carriage
inwards, carriage outwards, accounts
receivable, accounts payable
