The Trial BalanceThe Trial BalanceThe Trial BalanceThe Trial Balance

DBS3024 BUSINESS TRANSACTIONDBS3024 BUSINESS TRANSACTION

byStephen Ong

Visiting Fellow, Birmingham City University Business School

Visiting Professor, Shenzhen University

Today’s Overview Today’s Overview

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Learning objectivesLearning objectivesAfter this lecture, you should be able to:After this lecture, you should be able to: Prepare a trial balance from a Prepare a trial balance from a set of set of

accountsaccounts Explain why the debit and credit trial Explain why the debit and credit trial

balance balance totals should equal totals should equal one anotherone another Explain why some of the Explain why some of the possible errors possible errors

that can be made when double entries are that can be made when double entries are being entered in the accounts do not being entered in the accounts do not prevent the trial balance from ‘balancing’prevent the trial balance from ‘balancing’

Describe uses for a trial balance other than Describe uses for a trial balance other than to to check for double entry errorscheck for double entry errors

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11Double entry book keepingDouble entry book keeping

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Review of double entry bookkeepingReview of double entry bookkeeping

For each For each debit entry there is a credit entry debit entry there is a credit entry and for each and for each credit entry there is a debit credit entry there is a debit entry.entry.

The total of all the items recorded in all the The total of all the items recorded in all the accounts on the debit side accounts on the debit side should equal should equal the the total of all the items recorded on the credit total of all the items recorded on the credit side of the accounts.side of the accounts.

To To checkcheck that there is a matching credit that there is a matching credit entry for every debit entry, we prepare a entry for every debit entry, we prepare a trial balance.trial balance.

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22The Trial BalanceThe Trial Balance

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The trial balanceThe trial balanceThe trial balance is a list of account The trial balance is a list of account balances arranged according to whether balances arranged according to whether they are debit balances or credit balances.they are debit balances or credit balances.

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Drawing up a trial balanceDrawing up a trial balanceThe first stage is to balance each T-account.The first stage is to balance each T-account.

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Drawing up a trial balance Drawing up a trial balance (Continued)(Continued)

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The second stage is to enter the account The second stage is to enter the account balances into the appropriate column.balances into the appropriate column.

Drawing up a trial balance Drawing up a trial balance (Continued)(Continued)

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Drawing up a trial balance Drawing up a trial balance (Continued)(Continued)

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The trial balance always has the The trial balance always has the date of date of the last day of the accounting period the last day of the accounting period to to which it relates. It is a snapshot of the which it relates. It is a snapshot of the balances on the ledger accounts at that balances on the ledger accounts at that date.date.

The totals of the two columns must The totals of the two columns must always always match.match.

A trial balance can be drawn up at any A trial balance can be drawn up at any time but it is normal practice to prepare time but it is normal practice to prepare one at the end of an accounting period one at the end of an accounting period before preparing an income statement and before preparing an income statement and statement of financial position.statement of financial position.

Drawing up a trial balance Drawing up a trial balance (Continued)(Continued)

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33Common ErrorsCommon Errors

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Trial balances and errorsTrial balances and errors It is easy to assume that if the trial balance It is easy to assume that if the trial balance

balances, the entries in the accounts must balances, the entries in the accounts must be correct. However, there are be correct. However, there are several several types of error types of error that will not affect the that will not affect the balancing of a trial balance.balancing of a trial balance.

Errors that are revealed include: Errors that are revealed include: 1.1. addaddition errors; ition errors;

2.2. using one figure for the debit using one figure for the debit entryentry and and another for the credit entry; another for the credit entry;

3.3. entering only entering only one side one side of the transaction.of the transaction.

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Inventory in the trial balanceInventory in the trial balance The The closing inventory figure closing inventory figure is not is not

found in an account in the ledger and found in an account in the ledger and so does not appear in the trial so does not appear in the trial balance. It is noted underneath the balance. It is noted underneath the total figure and incorporated into the total figure and incorporated into the financial statements later.financial statements later.

Opening inventory Opening inventory is recorded in a is recorded in a ledger account and so would be ledger account and so would be included in a trial balance prepared.included in a trial balance prepared.

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Learning outcomesLearning outcomes

You should have now learnt:You should have now learnt:1.1. How to How to prepare a trial balanceprepare a trial balance2.2. That trial balances are one form of That trial balances are one form of

checking the checking the accuracy of entries accuracy of entries in the in the accountsaccounts

3.3. That That errorserrors can be made in the entries to can be made in the entries to the accounts that will not be shown up by the accounts that will not be shown up by the trial balancethe trial balance

4.4. That the trial balance is used as the basis That the trial balance is used as the basis for for preparing income statements and preparing income statements and statements of financial positionstatements of financial position

Resources : Core ReadingResources : Core Reading

Wood, Frank and Robinson, Sheila Wood, Frank and Robinson, Sheila (2009) (2009) Bookkeeping and Accounts Bookkeeping and Accounts ,7,7thth Edition, Pearson/ FT Prentice HallEdition, Pearson/ FT Prentice Hall

Wood, Frank and Sangster, Alan (2012) Business Accounting ,12th Edition, Pearson/ FT Prentice Hall

Fortes, Hilary (2011) Accounting Simplified , Pearson/ FT Prentice Hall

QUESTIONS?QUESTIONS?