Methods of Preparing a Trial Balance

What is Trial Balance?

A trial balance is a financial statement that shows a company’s financial position at the end of each accounting period. It includes items such as cash, receivables, and inventories.

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.

After all monthly transactions have been reviewed, journalized, and updated continuously throughout the accounting period (a month in our example), we may begin creating a trial balance (unadjusted). Preparing a trial balance without adjustments is the fourth phase in the accounting cycle.

Types of Trial Balance

In accounting, there are three kinds of Trial balances. They are:

Unadjusted Trial Balance

It only denotes the preparation of a trial balance prior to entering the correcting entries into the books of accounts. It is formulated before any modifications are made, as well as before the ledger account balances are retrieved. Because this is not the final version of the data, it cannot be utilised to generate the financial statements because there may be revisions that need to be made.

Adjusted Trial Balance

It indicates that a trial balance is generated after correcting entries have been made in the books of accounts. Adjustments are made to ledger accounts, resulting in the entry of adjusting entries to correct mistakes, and any omitted transactions are recorded. It contains the final corrected balances. Consequently, it may be utilised to create financial statements.

Post Closing Trial Balance

It indicates that a statement is created after the closing entries have been finished in their entirety. After closing entries have been made in the books of accounts, it is produced by taking the ledger account balances and preparing them separately. This statement serves as the beginning trial balance that may be applied to the following fiscal year.

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

Trial Balance

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

The 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.