1. Think: Do you think that the ledger account postings are error free? If not, how do you make sure that the entries are correct?

Answer:

No, there may be some errors, If both or any one aspect is not recorded correctly.

Example: error in amount, or account head, or side. In such a situation, every ledger posting has to be verified.

Only, if both the aspects are recorded correctly, the ledger will be correct.

 

2. Think: Do you think the trial balance tallies all the time? What should be done when it does not tally?

- The trial balance has two sides, the debit side and the credit side. ... The debit side and the credit side must balance, meaning the value of the debits should equal the value of the credits. A trial balance will not balance if both sides do not equal, and the reason has to be explored and corrected.

·         After transferring all the ledger account balances, if the trial balance does not tally, steps must be taken to locate and rectify errors. If the errors cannot be rectified, then trial balance is tallied by transferring the difference between the total of debit balances and the total of credit balances to a temporary account, called suspense account for timely preparation of the financial statements. If the trial balance shows lesser debit total, suspense account will be debited. Similarly, if the trial balance shows lesser credit total, suspense account will be credited. Later, when errors are located and rectified, the trial balance will get tallied.

 

3. Explain the needs for preparing TB:

·         Trial balance helps to check the arithmetical accuracy of entries made in the accounting records.

·         Trial balance serves as a lubricant for the smooth movement and completion of the accounting cycle, because, it is with the help of the trial balance that discrepancies in the book keeping work are detected.

·         If these discrepancies are not detected and set right, the cycle cannot be completed properly.

·         The trial balance helps in discovering errors which may have been committed in the accounting records. However, in computerised accounting system, once the transactions are recorded in the journals, all the other records are made simultaneously, i.e., ledger postings, trial balance and final accounts.

·         Hence, arithmetic errors and errors in posting the entries from journal to ledger and further will not occur in computerised accounting.

 

4. Study all tutorial notes:

Pgno:86

Pgno:86

 

5. Specimen of TB pgno 85

 

6. Explain suspense account:

After transferring all the ledger account balances, if the trial balance does not tally, steps must be taken to locate and rectify errors. If the errors cannot be rectified, then trial balance is tallied by transferring the difference between the total of debit balances and the total of credit balances to a temporary account, called suspense account for timely preparation of the financial statements. If the trial balance shows lesser debit total, suspense account will be debited. Similarly, if the trial balance shows lesser credit total, suspense account will be credited. Later, when errors are located and rectified, the trial balance will get tallied.

 

7. Points to remember

• Trial balance is prepared on a particular date. The date must be mentioned in the title of trial balance.

• A trial balance is prepared with the help of balances of ledger accounts.

• Trial balance is prepared to check the arithmetical accuracy of entries made in the books of accounts.

• Under balance method, the debit balances of the accounts are to be written in debit column, and the credit balances of the accounts are to be written in the credit column of trial balance. Under balance method, if an account does not have a balance, it is excluded.

• If the trial balance does not tally, the difference between debit and credit columns should be taken to a temporary account called ‘suspense account’ if financial statements are to prepared immediately.

 

8. Do you know?

Duality concept is applied in trial balance. This concept requires two aspects to be entered for every transaction. This means that there are at least two accounts involved for every transaction.

 

9. Learn all the basic rules

Rules to prepare the Trial balance

The rule to prepare the Trial balance is an equation which is as follows:

Total Debit Entries = Total Credit Entries

Debit

Credit
  • All Assets ( Cash in hand, Cash at Bank, Inventory, Land and Building, Plant and Machinery etc., )
  • Sundry Debtors
  • Expenses ( Carriage Inward, Freight, Rents, rebates and rates, Salary, Commission etc., )
  • Purchases
  • Losses ( Depreciation, Return inwards, Profit and loss A/c (Dr.), Bad debts etc., )
  • All liabilities ( Bank Overdraft, Secured and unsecured loans, bills payable, Outstanding Payables or expenses, Loan on mortgage etc ., )
  • Sundry Creditors
  • Reserve fund, general reserve, provision for depreciation, Accumulated depreciation etc.,
  • Sales

Gains ( Discount received, Return Outwards, Bad debts recovered, Profit and loss A/c (Cr) etc., )

 

 

10. Practice all illustrations and book back exercises.