What is Trial Balance

Form time to time the equality of debits and credits in the ledger should be verified. In any event the verification should be performed at the end of each accounting period. Such a verification, which is called a trial balance, may be in the form of adding machine tape or in the form illustrated below. The summary listing of both the balances and titles of the accounts is also useful in preparing the profit and loss account and balance sheet.

XYZ Company

Trial Balance

30^th June, 2009

Cash                                                                          1702

Debtors                                                                        585

Supplies                                                                       750

Prepared Rent                                                              600

Office Equipment                                                        6000                 

Creditors                                                                                              1400

XYZ, Capital                                                                                        6300   

XYZ, Drawing                                                              500

Sales                                                                                                    2540

Miscellaneous Expenses                                                103                 

                                                                                 10,240.00         10,240.00                    

As the first step in preparing the trial balance all accounts having two or more debits or credit are pencil footed. Four accounts having both debits and credit, the memorandum balance is also indicated. The trial balance does not provide complete proof of the accuracy of the ledger. It indicates only that the debits and credits are equal. This proof is of value, however, because errors frequently affect the equality of debits and credits. If the two totals of a trial balance are not equal, it is probably due to one or more of the following type of errors:

1.                  Error in preparing the trial balance, such as:

a.                   One of the columns of the trial balance was incorrectly added.

b.                  The amount of an account balance was incorrectly recorded on the trail balance.

c.                   A debit balance was recorded on the trial balance as a credit, or vice versa, or a balance was omitted entirely.

2.                  Error in determining the account balance, such as:

a.                   A balance was incorrectly computed.

b.                  A balance was entered on the wrong side of an account.

c.                   One side of an account was incorrectly totaled.

3.                  Errors in recording a transaction in the ledger, such as:

a.                   An erroneous amount was posted to the account.

b.                  A debit entry was posted as a credit or vice versa.

c.                   A debit or a credit posting was omitted.

      Among the types of errors that will not cause an inequality in the trial balance totals are the following:

1.                    Failure to record a transaction or to post a transaction.

2.                    Recording the same erroneous amount for both the debit and the credit parts of a transaction.

3.                    Recording the same transaction more that one.

4.                    Posting a part of a transaction to the wrong account.

      It is readily apparent that care should be exercised both in recording transactions in the journal and in posting to the accounts. The desirability of accuracy in determining account balances and reporting them on the trial balance is equally obvious.