The Accounting Cycle Lesson 6 Trial Balance 1

The Accounting Cycle Lesson 6 – Trial Balance 1

What is Trial Balance? Ø At a period end, all accounts balances will be shown on the trial balance to check the equality of total debit balances and total credit balances for all accounts. Ø Unless there are mistakes, the total sum of amount as shown on the debit column and the credit column of a trial balance must be equal under the double entry book-keeping system. 2

Layout of Trial Balance ß ß ß Trial balance consists of two columns – debit and credit columns. If an account is balanced. Nothing is to be shown on the trial balance. If an account has debit balance, it should be shown on the debit column of the trial balance, similarly, the credit balance should be posted to the credit column of the trial balance. 3

Format of a Trial Balance as at 31 March 20 x 5 Dr $ Office rent and rates 36, 400 Sales commissions Cash at bank 20, 200 Creditors Purchases returns Office salaries General expenses 1, 510 Debtors 8, 760 Cash in hand 2, 300 Discounts received Fixtures and fittings 40, 400 Sales returns 250 Freehold land 70, 000 Discounts allowed Loan from Arthur Capital 4 179, 820 Cr $ 8, 000 17, 050 315 6, 600 900 81, 510 600 32, 100 32, 745 179, 820

Notes in preparing Trial Balance DEBIT Asset ______balance CREDIT Liabilities _____ balance CREDIT Capital _____ balance DEBIT Expense _____ balance CREDIT Revenue _____ balance No restriction in the order of listing of the above balances in the trial balance 5

Worked Example (Question) The following balances were extracted from the books of De Vinci as at 31 December 20 x 6: $ Wages and salaries 17, 860 Purchases 35, 130 Proprietor's drawings 2, 000 Returns inwards 5, 170 Cash at bank 10, 000 Commissions received 7, 060 Sales 100, 500 Sundries 800 Rent and rates Stationery 12, 000 6 1, 350 (To be continued…)

Worked Example (Question) The following balances were extracted from the books of De Vinci as at 31 December 20 x 6: $ Electricity 1, 240 Debtors 5, 060 Returns outwards 1, 270 Lorry 95, 000 Cash in hand 3, 000 Creditors 6, 600 Office equipment 75, 000 Bank loan 20, 000 Petty cash 1, 000 Capital ? 7

Worked Example (Question) Required: Prepare a trial balance as at 31 December 20 x 6. 8

Worked Example (Answer) Step 1: Decide whether the account is a debit or credit balance Dr Dr Dr Cr Cr Dr Dr Dr 9 (To be continued…)

Worked Example (Answer) Step 1: Decide whether the account is a debit or credit balance Dr Dr Cr 10

Worked Example (Answer) Step 2: Post the balance of accounts to respective column De Vinci Trial Balance as at 31 December 2006 Dr $ Wages and salaries 17, 860 Purchases 35, 130 Proprietor's drawings 2, 000 Returns inwards 5, 170 Cash at bank 10, 000 Commissions received Sales Sundries 800 Rent and rates 12, 000 11 Stationery 1, 350 Cr $ 7, 060 100, 500 (To be continued…)

Worked Example (Answer) Step 2: Post the balance to respective column De Vinci Trial Balance as at 31 December 2006 Dr $ Electricity 1, 240 Debtors 5, 060 Returns outwards Lorry 95, 000 Cash in hand 3, 000 Creditors Office equipment 75, 000 Bank loan Petty cash 1, 000 Capital 12 Cr $ 1, 270 6, 600 20, 000 129, 180

Worked Example (Answer) De Vinci Trial Balance as at 31 December 20 x 6 Dr $ Wages and salaries 17, 860 Purchases 35, 130 Proprietor's drawings 2, 000 Returns inwards 5, 170 Cash at bank 10, 000 Commissions received Sales Sundries 800 Rent and rates 12, 000 Stationery 1, 350 Electricity 1, 240 Debtors 5, 060 Returns outwards Lorry 95, 000 Cash in hand 3, 000 Creditors Office equipment 75, 000 Bank loan Petty cash 1, 000 Capital 264, 610 13 Step 3: Check the equality of the trial balance Cr $ 7, 060 100, 500 1, 270 6, 600 20, 000 129, 180 264, 610

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