Page 122 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes Generally three columns are made in the trial balance. The first wide column is kept for the
particulars of accounts and the two columns for debit amount and credit amount are made.

7.1.1 Objects and Functions of Trial Balance

The main objectives of preparing a trial balance are to check the arithmetical accuracy of all
transactions. In every trial balance, the total of debit balances must agree with the total of credit
balances. It is a proof of arithmetical accuracy of postings but it is not a conclusive evidence of
correctness of the books of accounts. The other objects and functions of a trial balance are as
under:

1. It serves as a summary of all accounts.
2. It helps in locating errors if any.
3. It acts as a base for the preparation of final accounts.

7.2 Methods of Preparation of Trial Balance

A trial balance is prepared by the following three methods:

1. Balance Method
2. Total Method
3. Balance and Total Method or Combined Method
Among the above methods the balance method is the most popular and statutory method to
prepare the Trial Balance. Under this method the balance of all the accounts are recorded. If an
account shows a debit balance in the ledger, this balance is recorded in the debit side of the trial
balance and if it has a credit balance, in the credit side of it is written. If any account has no
balance means its total of debit side is equal to the total of credit side, it is not recorded in the
Trial Balance. After recording the balances of all accounts of the Ledger, the amounts of both the
sides are totalled to check the arithmetical accuracy of the ledger. If the total of debit side agrees
with the total of credit side, it proves that books are at least arithmetically correct. However, the
trial balance is not the sole proof of accuracy of the books of Ledger. There may be errors which
are discussed later in this unit.
Total Method instead of taking balance of each account, the total of both the sides of each account
is taken. Combined method is both the above explained method i.e., balance as well as total
method are used. This method is not in use because of wastage of time and labour.
Illustration 1: Prepare ledger accounts and also a trial balance from the following transactions:

2011 ( )
July 1 Ram commenced business with cash 10,000
July 3 Paid to bank 8,000
July 3 Bought goods for cash 500

July 5 Bought office furniture 400
July 10 Drew from bank for office 1,000
July 13 Goods sold to Shyam 600
July 15 Bought goods from Krishan 410

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