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6 The Trial Balance

Here are the answers to the questions: 1. A trial balance may still balance if some of the balances are wrong. True. Compensating errors can cause a trial balance to still balance even if some individual account balances are incorrect. 2. b) $65,000. Sales of $140,000 + Purchases of $75,000 + Expenses of $25,000 = $240,000. Sales - Expenses = Profit. $140,000 - $75,000 - $25,000 = $40,000. 3. If the total debits exceed the total credits in a T-account, the account has a debit balance. 4. A debit balance

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77 views4 pages

6 The Trial Balance

Here are the answers to the questions: 1. A trial balance may still balance if some of the balances are wrong. True. Compensating errors can cause a trial balance to still balance even if some individual account balances are incorrect. 2. b) $65,000. Sales of $140,000 + Purchases of $75,000 + Expenses of $25,000 = $240,000. Sales - Expenses = Profit. $140,000 - $75,000 - $25,000 = $40,000. 3. If the total debits exceed the total credits in a T-account, the account has a debit balance. 4. A debit balance

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ayshaneasrin08
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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6 The trial Balance

What is trial balance?


A trial balance is a list of ledger balances shown in debit and credit columns.
At suitable intervals, the entries in each ledger account are totaled and balance is
struck. Balances are usually collected in a trial balance which is then used as a basis
for preparing a statement of profit or loss and a statement of financial position.
Step 1 – Balancing Ledger Accounts
Cash
$ $
Capital 10,000 Purchases 200
Sales 250 Rent 150
Electricity 75
Balance c/f 9825

10250 10,250

Balance b/f 9825

Step 2 – Collecting the balances


Cash Dr balance of 9825
This is taken to the trial balance. A trial balance can be used to test the accuracy of
the double entry accounting records. It works by listing the balances on ledger
accounts, some of which are debits and some credits. Total debits should be equal to
total credits.

Example of Trial Balance


ABC Ltd
Trial Balance as at………………….
Account Title Debit Credit
Share capital XXX
Cash XXX
Sales XXX
Buildings XXX
Furniture & Fixture XXX
Purchases XXX
Administrative expenses XXX
Loans XXX
Trade receivables XXX
Trade payables XXX
---- ---
XXX XXX
Example Question
GAT Co sets up as a company and in the first nine days of trading the following
transactions occurred:
1 January It issued $10,000 share capital for cash.
2 January It purchased goods for $4,000 and pay by cheque.
3 January It bought a delivery van for $2,000 and pay by cheque.
4 January It purchased $1,000 of goods on credit.
5 January It sold goods for $1,500 cash.
6 January It sold all remaining goods for $5,000 on credit.
7 January It paid $800 to suppliers by cheque.
8 January It paid rent of $200 by cheque.
a) Complete the relevant ledger accounts.
b) Extract a trial balance.

What if the trial balance shows unequal debit and credit


balances?
If the two columns of the list are not equal, there must be an error in recording the
transactions in the accounts. A list if account balances, however, will not disclose the
following types of errors:
a) The complete omission of a transaction, because neither a debit nor a credit is
made
b) The posting of a debit or credit to the correct side of the ledger, but to a wrong
account
c) Compensating errors (eg an error of $100 is exactly cancelled by another $100
error elsewhere)
d) Errors of principle (eg cash from receivables being debited to trade accounts
receivable and credited to cash at bank instead of the other way round)

The trial balance should reveal errors where the rules of double entry have been
broken, such as:
a) One-sided entries
b) Where an entry has been posted as a credit to one account and a credit to a second
account and no debit entry has been made (or two debits and no credits)
Question Discussions

Q.1) A trial balance may still balance if some of the balances are wrong. True or false?

Q.2) In a period, sales are $140,000, purchases $75,000 and other expenses
$25,000. What is the figure for profit for the year to be transferred to the capital
account?
a) $40,000
b) $65,000
c) $75,000
d) $140,000

Q.3) If the total debits exceed the total credits in a T-account, does the account have
a debit or a credit balance?

Q.4) What does a debit balance brought down in the Cash T-account represent an
asset or a liability?

Q.5) An accountant has inserted all the relevant figures into the trade receivables
account, but has not yet balanced off the account.

Trade receivables account


$ $
Balance b/d 100,750 Cash at bank 250,225
Sales 325,010

Assuming there are no other entries to be made, other than to balance off the
account, what is the closing balance on the trade receivables account?
a) $425,760 DR
b) $175,535 DR
c) $425,760 CR
d) $175,535 CR
Q.6) Alpha has the following opening balances on its ledger accounts.
$
Fixtures 5,000
Trade accounts receivable 2,000
Bank accounts receivable 1,000
Loan 3,000

a) What is the total assets figures?


b) What is the opening figure for capital?

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