Trial Balance

Introduction

Now that we have balanced off our accounts we are now ready to prepare our trial balance. This will be prepared from the balances on the ledger accounts.

Objectives

Upon completion of this unit you should be able to:
1. Define trial balance.
2. State the uses of the trial balance.

Definition of Trial Balance

A Trial Balance is an essential stage in ensuring the accuracy of the book-keeping entries prior to the preparation of the financial statements. The trial balance lists the name of each account together with the balance shown in either the debit or credit columns. (Wood and Robinson, 2007) It is a list of the account balances in your records.

You can extract your trial balance from the balances on your ledger accounts. Before you prepare your trial balance let us look at the uses of the trial balance.

Use of the Trial Balance

According to Wood and Robinson (2007) Trial Balances may be used:

• To check that the books ‘balance’, i.e. every debit entry has been accompanied by a credit entry.
• To ascertain the net amount of the error(s), should an error(s) have been made.
• As a basis from which the financial statement are prepared.

The trial balance is used to check the arithmetically balance of our accounts. The trial balance has two monetary columns a debit and credit column. You would have seen in your ledger account that some balance b/d are on the debit side of the account and others are on the credit side. When you are transferring the balances from the ledger accounts to the trial balance the balances remain on the same side as the ledger accounts.

Below is the Trial Balance from the examples in this unit. Take note that it should have the following:

1. Heading that states the name of the business, the words Trial Balance as at (the date the trial balance is being prepared).
2. A details column for the name of the accounts
3. Folio column indicating the reference information
4. A debit and credit monetary column

MJ Retailers
Trial Balance
as at 30th September 2006
		Dr.	Cr.
		$	$
Accounts Receivable
Oren Peters	SL	111.30
Malika Diantha	SL	350.85
Accounts Payable
A.M. Bryden	PL		89.80
AJ Wholesale	PL		103.80
J Smith	PL		1,500.00
Sales	GL		823.85
Purchases	GL	521.60
Sales Return	GL	209.70
Purchases Return	GL		153.00
Cash	CB	302.00
Equipment	GL	1,200.00
Motor Van	GL	2,500.00
Capital	GL		3,150.00
Bank	CB	625.00
		5,820.45	5,820.45

Take not that both columns of your trial balance are equal. The information is recorded on the same side as the balances b/d in the ledger accounts. If your trial balance included expenses and revenue your expenses would be recorded in the debit column and revenue in the credit column.

---

Unit Summary

We have now completed the bookkeeping stage of the accounting process with our trial balance. Now that you have completed unit two take some time to review the content in both Units One and Two before you proceed to unit 3. It is very important that you fully understand the contents in these two units if you are to understand the information in the upcoming units. Also, review the activities and assignments and check your answers with the answers given.

At this stage you should be able to identify source document and transfer the information to the different books of original entry. You should also be able to post to you ledgers and balance them off and transfer those balances to the Trial Balance. The next step is to examine the adjustments necessary to ensure that your Financial Statements represents a true and fair view of your business.

---

Self-Reflection Questions

Now that you have completed Unit Two take some time to review the content in both Units One and Two before you proceed to Unit 3. Reflect on these questions:

1. Do I know who are my accounts receivable and accounts payable?
2. Are you able to distinguish between accounts payable and accounts receivable?
3. Do you know the entries necessary to increase or decrease the amount on account based on the type of accounts?
4. Do you understand when different types of accounts should be debited and when it should be credited?

---

Assignment
You can now complete the unit assignment by preparing the Trial Balance from the balances on your ledger accounts.