Methods of Preparation of Trial Balance
What is Trial Balance?
A trial balance is a list of all transactions on your account or book of accounts.
A trial balance is a list of all debits and credits in your accounting system. The total of debits must equal the total of credits. It’s an excellent tool for understanding your financial position because it gives you an easy-to-digest snapshot of what’s going on in your entire company.
But why do you need to know how to make one? What importance does it hold in your books? How will it help you save even more money? Find out below.
Methods of Preparation of Trial Balance
There are three methods of preparation of trial balance: Total method; Balance method, Total and balance method
Now we shall understand each method in detail with logic and illustration as follows:
- TOTAL METHOD
Under this method, every ledger account is totalled, and that total amount (both on the debit and credit sides) is transferred to the trial balance. In this method, the trial balance can be prepared as soon as the ledger account is totalled.
Time taken to balance the ledger accounts is saved under this method as the balance can be found out in the trial balance itself. The difference of totals of each ledger account is the balance of that particular account. This method is not commonly used as it cannot help in the preparation of the financial statements
Suppose the following ledger balances are provided to us, and we have to prepare a trial balance:
Cash A/c
Dr. | Cr. | ||||||
Date 2013 | Particular | J.F. | $ | Date 2013 | Particular | J.F. | $ |
Jan 1 | To balance b/d | 8000 | Jan 1 | By Purchase A/c | 3800 | ||
Jan 15 | To Robert | 300 | Jan 8 | By Plant A/c | 300 | ||
Jan 18 | To Sales A/c | 1000 | Jan 31 | By balance c/d | 5200 | ||
9300 | 9300 | ||||||
Feb 1 | To balance b/d | 5200 |
Bank A/c
Dr. | Cr. | ||||||
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 1 | To balance b/d | 20000 | Jan 31 | By Balance c/d | 20000 | ||
20000 | 20000 | ||||||
Feb 1 | To balance c/d | 20000 |
Stock A/c
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 1 | To balance b/d | 20000 | Jan 31 | By balance c/d | 20000 | ||
20000 | 20000 | ||||||
Feb 1 | To Balance b/d | 20000 |
Building A/c
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 1 | To balance b/d | 10000 | Jan 31 | By Balance c/d | 10000 | ||
10000 | 10000 | ||||||
Feb 1 | To Balance b/d | 10000 |
Rita A/c
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 1 | To balance b/d | 2000 | Jan 31 | By Balance c/d | 2000 | ||
2000 | 2000 | ||||||
Feb 1 | To Balance b/d | 2000 |
Albert’s A/c
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 31 | To balance c/d | 5000 | Jan 1 | By Balance b/d | 5000 | ||
5000 | 5000 | ||||||
Feb 1 | By Balance b/d | 5000 |
Capital A/c
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 31 | To balance c/d | 55000 | Jan 1 | By Balance b/d | 55000 | ||
55000 | 55000 | ||||||
Feb 1 | By Balance b/d | 55000 |
Purchase A/c
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 1 | To cash A/c | 3800 | Jan 31 | By balance c/d | 4000 | ||
To Discount A/c | 200 | ||||||
4000 | 4000 | ||||||
Feb 1 | To balance b/d | 4000 |
Discount A/c
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 1 | By Purchases A/c | 200 | |||||
Jan 31 | To balance c/d | 200 | |||||
200 | 200 | ||||||
Feb 1 | By Balance b/d | 200 |
Plant A/c
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 8 | To Michael A/c | 5000 | Jan 31 | By Balance c/d | 5300 | ||
Jan 8 | To Cash A/c | 300 | |||||
5300 | 5300 | ||||||
Feb 1 | To Balance b/d | 5300 |
Michael’s A/c
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 31 | To balance c/d | 5000 | Jan 8 | By plant A/c | 5000 | ||
5000 | 5000 | ||||||
Feb 1 | By balance b/d | 5000 |
Sales A/c
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 31 | To balance c/d | 1600 | Jan 12 | By Robert | 600 | ||
Jan 18 | By Cash | 1000 | |||||
1600 | 1600 | ||||||
Feb 1 | By Balance b/d | 1600 |
Robert’s A/c
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 12 | To Sales A/c | 600 | Jan 15 | By Cash A/c | 300 | ||
Jan 15 | By Bad Debts A/c | 300 | |||||
600 | 600 |
Bad Debts
Date | Particular | J.F. | $ | Date | Particular | J.F. | $ |
Jan 15 | To Robert | 300 | Jan 31 | By Balance c/d | 300 | ||
300 | 300 | ||||||
Feb 1 | To balance b/d | 300 |
Solution
Sr. No. | Name of Account | Total Debit | Total Credit |
1 | Cash | 9300 | 4100 |
2 | Bank | 20000 | |
3 | stock | 20000 | |
4 | Building | 10000 | |
5 | Rita | 2000 | |
6 | Albert | 5000 | |
7 | Capital | 55000 | |
8 | Purchase | 4000 | |
9 | Discount | 200 | |
10 | Plant | 5300 | |
11 | Michael | 5000 | |
12 | Sales | 1600 | |
13 | Bad Debts | 300 | |
70900 | 70900 |
- BALANCE METHOD
Under this method, every ledger account is balanced, and those balances only are carried forward to the trial balance. This method is used commonly by accountants and helps in the preparation of financial statements. Financial statements are prepared on the basis of the balances of the ledger accounts.
Trial Balance
Sr. No. | Name of Account | Debit Balance | Credit Balance |
1 | Cash | 5200 | |
2 | Bank | 20000 | |
3 | stock | 20000 | |
4 | Building | 10000 | |
5 | Rita | 2000 | |
6 | Albert | 5000 | |
7 | Capital | 55000 | |
8 | Purchase | 4000 | |
9 | Discount | 200 | |
10 | Plant | 5300 | |
11 | Michael | 5000 | |
12 | Sales | 1600 | |
13 | Bad Debts | 300 | |
66800 | 66800 |
- TOTAL AND BALANCE METHOD
Under this method, the above two explained methods are combined. Under this method statement of trial, balance contains seven columns instead of five columns.
Trial Balance
Sr. No. | Name of Account | Total Debit | Total Credit | Debit Balance | Credit Balance |
1 | Cash | 9300 | 4100 | 5200 | |
2 | Bank | 20000 | 20000 | ||
3 | stock | 20000 | 20000 | ||
4 | Building | 10000 | 10000 | ||
5 | Rita | 2000 | 2000 | ||
6 | Albert | 5000 | 5000 | ||
7 | Capital | 55000 | 55000 | ||
8 | Purchase | 4000 | 4000 | ||
9 | Discount | 200 | 200 | ||
10 | Plant | 5300 | 5300 | ||
11 | Michael | 5000 | 5000 | ||
12 | Sales | 1600 | 1600 | ||
13 | Bad Debts | 300 | 300 | ||
70900 | 70900 | 66800 | 66800 |
Conclusion
Trial balance is a method of checking to make sure that all the transactions in a financial period are balanced. It ensures that there are no overdrafts, under or overpayments in the transaction and thus provides a good picture of the account. In this post, you have learnt about three methods of preparation for trial balance.