Accounting records

1. Accounting records Trial Balance

2. Meaning • Trial Balance is a statement which is prepared in a Separate Papers by taking up all the ledger account balances on a particular date in order to verify the arithmetical accuracy of the account in the ledger and putting the Debit in one side and Credit in another.

3. Principle Total debit entries = Total credit entries • For each debit entry there is a credit entry. • For each credit entry there is a debit entry.

4. Purpose/Objective of Trial Balance • To have all balances of all the accounts of the ledger at one place. • To have a check whether the transactions has been recorded by using double entry principle

5. Purpose/Objective of Trial Balance • To have arithmetic accuracy of other books of accounts because of the agreement of the trial balance.

6. Limitations of Trial balance: • Trial balance can be prepared only in the concerns where double entry system of accounting is adopted. This system is very costly and cannot be adopted by small concerns • It is not a conclusive proof and there may be chances of not entering entire account or entering it twice by mistake.

7. Preparation / Methods of Trial balance • TOTAL METHOD: Under this method, Trial balance is prepared by taking up the totals of both Debit and Credit of all ledger accounts. • BALANCE METHOD: Under this method, Trial balance is prepared by taking up the balance of each ledger account. • COMPOUND METHOD: It is the combination of above two methods. it is also known as Total-Cum-balance method

8. ERRORS, WHICH ARE DISCLOSED BY A TRIAL BALANCE: • a) Posting on the wrong side of an account and posting of a wrong amount to a ledger account also creates disagreement of the trial balance. • b) Omission of posting of an entry from the subsidiary book. • c) Errors in casting or totaling of subsidiary books or accounts or if there is any error in the balancing the ledger account –also came disagreement of trial balance. • d) If any item is posted twice in a ledger account from subsidiary book or put a ledger balance on the wrong column, the trial balance will not agree.

9. ERRORS, WHICH ARE NOT DISCLOSED BY A TRIAL BALANCE • a) Errors of Omission: when the transition is not at all recorded in the books of account i.e., neither in the debit side nor in the credit side of the account -Trial balance will agree. • b) Error of Commission: when there is any variation in figure/amount e.g. Instead of P 800 either P 80 or P 8000 is recorded in both sides of ledger account –Trial balance will agree • c) Error of Principles: when wrong posting is made in the books of account i.e. accounts are prepared not according to double entry principle e.g. Purchased plant wrongly debited to purchase account –Trial balance will agree.

10. ERRORS, WHICH ARE NOT DISCLOSED BY A TRIAL BALANCE [ Cont.. ] • d) Error of Misposting: When wrong posting is made to a wrong account instead of a correct one although amount is correctly recorded eg. Sold goods to B but wrongly debited to D’s account-Trial balance will agree. • Compensating Error: When one error is compensated by another error e.g. Discount allowed P 100 not debited to discount allowed account where as intrest received P100 but not created to intrest account-trail balance will agree

11. SUSPENSE ACCOUNT (Difference in books account): • If the agreement of trail balance is disturbed due to the existence of some error or errors in the books of account, the difference is transferred to the suspense account. When the error or errors are found out and rectified the suspense account is to be closed

12. Hints For Preparation of Trail Balance: • Debit Side = Assets + Expenses + debtors. • Credit Side =Liabilities + Income + Creditors.