Title Chapter 6 Trial Balance And Rectification Of Errors.pdf ✅

ACCOUNTANCY Chapter 6: Trial Balance and Rectification of Errors
(1) 06 TRIAL BALANCE AND RECTIFICATION OF ERRORS Trial Balance And Rectification Of Errors Meaning of Trial Balance Trial balance is a statement prepared to check the arithmetical accuracy of transactions recorded in the journal and those posted to the ledger and balanced the ledger accounts. The balance of ledger accounts shows the difference between the total of the debit items and credit items in an account. A debit balance shows the total of debit items greater and a credit balance shows the total of credit items greater. These debit and credit balances are posted in the respective column of the trial balance. According to the double entry system, each debit item has a corresponding credit item. Hence, the total of the debit and credit balances are equal for different accounts in the ledger. When the debit and credit balances are equal in the trial balance, it is clear that all the posting and balancing of accounts are arithmetically correct. According to Carter, a trial balance is the list of debit and credit balances, taken out from the ledger. It also includes cash and bank balances taken from the cash book. Features of Trial Balance ▪ It is a complete record of all ledger accounts and cash book ▪ It is prepared as a result of the double entry system of book keeping, thought it is not a part of it. ▪ It assists in verifying the arithmetic accuracy of posting entries from journal to ledger accounts ▪ It is not completely accurate to take any decision because there are some errors not disclosed in this trail balance. It doesn’t disclose some of the errors because of which it is not considered as absolute proof of accuracy. ▪ It is prepared on a particular date and considered as a working paper. Functions of Trial Balance ▪ It helps to ascertain the arithmetical accuracy of ledger accounts.
(2) 06 TRIAL BALANCE AND RECTIFICATION OF ERRORS ▪ It assists in preparing the financial statement ▪ It provides a summary of the ledger accounts ▪ It identifies the errors in book keeping work but does not disclose all the errors in book keeping. Debit Balances- Assets, debtors, drawings, expenses and losses Examples: ▪ Purchases ▪ Sales returns ▪ Machinery ▪ Rent ▪ Bills Receivable Credit Balances- Liabilities, creditors, capital, incomes and gains Examples: ▪ Sales ▪ Purchases returns ▪ Commission received ▪ Bank overdraft ▪ Bills payable Methods of Preparing a Trial Balance The three methods followed to prepare the trial balance are total method, balance method and total-cum- balance method. We will learn only balance method in this section. Balance Method for Preparing Trial Balance A trial balance is prepared by depicting the balances of all the ledger accounts and placing the debit and credit balances separately in the two columns. All the debit balances are recorded in the debit column and all the credit balances are recorded in the credit column. Specifics of Trial Balance
(3) 06 TRIAL BALANCE AND RECTIFICATION OF ERRORS ▪ A trial balance is prepared on a particular date which should be mentioned on the top. ▪ Name of the account should written in the first column. ▪ The page number of the ledger where the balance appears should be written in the ledger folio column. ▪ In the last two columns, the debit and credit balances are to be written. ▪ Finally, the two columns are added up. Points to Prepare a Trial Balance ▪ Ledger and cash book are used to prepare the trial balance. ▪ The balances of all accounts– assets, liabilities, capital, expenses and revenue accounts (including cash balance and bank accounts) are placed in the debit and credit column of the trial balance. An account with no balance is not recorded. ▪ Opening stock account which has a debit balance is recorded in the debit column of the trial balance. ▪ However, closing stock is not recorded in the trial balance and is given as additional information below the trial balance. It shows the balance of unsold goods from the opening stock and purchases. In order to incorporate the closing stock in the books of account, debit the closing stock account and credit the trading account by the amount of unsold stock at the end. In the balance sheet, closing stock appears as an asset on the assets side of the balance sheet. ▪ On the other hand, if the closing stock is to appear in the trial balance, then it needs to be adjusted through purchases by debiting the closing stock and crediting the purchases account. Hence, closing stock is not shown on the credit side of the trading account. However, it appears as an asset on the asset side of the balance sheet. ▪ Accounts of assets with debit balance such as machinery, fixtures, land and building, bills receivable, good will, trade mark, cash in hand, copyrights and patents are recorded in the debit column of the trial balance. ▪ A debit bank balance is recorded in the debit column of a trial balance and a credit bank balance is recorded in the credit column of a trial balance. ▪ A credit balance of incomes and gains are recorded in the credit column and debit balance of expenses and losses are recorded in the debit column of a trial balance. Prepare a trial balance of Mr. Ramesh from the given ledger balances as on 31St March, 2015. Particulars Amount ₹ Particulars Amount ₹ Purchases 33,800 Return inwards 3,200 Carriage inwards 900 Carriage outwards 1,200 Unpaid wages 4,100 Cash in hand 3,800 Reserve for doubtful debts 1,300 Outstanding expenses 3,400 Interest received 5,900 Bank overdraft 12,600 Discount allowed 3,100 Debtors 7,400