Showing posts with label Trial Blance. Show all posts
Showing posts with label Trial Blance. Show all posts

Reasons for not agreeing trial balance:

6:52 PM imran ali

The debit total of trial balance should be equal to credit total. Sometimes, they are not equal and it is assumed that there are some errors in books of account. Some of the reasons of errors may be as follows:
  1. Trial balance will disagree if a transaction is posted in one side of an account and omitted to post it in the another side of another account.
  2. If wrong amount is posted in ledger accounts, the trial balance will not agree.
  3. When an amount is posted wring side say in debit side instead of credit side, the trial balance will not agree.
  4. Sometime, a transaction may be posted twice in the ledger accounts. As a result, the total of a trial balance will not be equal.
  5. Disagreement of a trial balance may be caused by the wrong totaling or balancing of ledger accounts.
  6. While totaling the figure of subsidiary books there may arise some errors that will cause disagreement of trial balance.
  7. Omission to post a ledger balance also causes the disagreement of a trial balance.
  8. If there is wrong in totaling of trial balance, a trial balance will disagree.
  9. Another cause of disagreement of a trial balance may be the error made in carrying forward the total from one page to another.


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3. Mixed Method:

9:38 AM imran ali

This is the combination of total and balance methods. Total and balance methods of preparing trial balance are performed in same sheet. The amount column is divided two for total and two for balance method.


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2. Balance Method

9:13 AM imran ali

Balance method of preparing trial balance is very common. It is prepared with the help of ledger balances. First of all, all ledger accounts are balanced at the end of the year. A balance is the difference between the two sides of an account. If the debit side of an account is bigger, then insert the difference on the credit side of the account but it is known as 'debit balance'. On the other hand, if credit side of an account is bigger, then insert the difference on the debit side of the account. It is known as 'credit balance'. Now, the debit balance shall be entered in the debit and credit balance in the credit column of trial balance. The total of both debit and credit side must be equal.


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1. Total Method

4:08 AM imran ali

Under this method, trial balance is prepared with the debit and credit totals of all the ledger accounts. First of all, totals of all ledger accounts are found. Later on, debit totals of ledger accounts are transferred to debit column of trial balance and credit totals are transferred to credit column of trial balance. After then, the sum of both debit and credit columns of trial balance are found. The grand total of both columns should be equal. This method of preparing trial balance is not popular because it does help on preparation of final accounts. Final accounts are prepared from the ledger balances but not from totals of debit and credit.


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Methods of Preparation of Trial Balances:

4:05 AM imran ali

A trial balance may be prepared under following three methods:
  1. Total Method.
  2. Balance Method.
  3. Mixed Method.


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Ruling of Trial Balance

7:08 PM imran ali

Trial balance does not have any special format. It is simply a vertical presentation of ledger balance in the form of the table. Serial number, names of the ledger accounts, ledger folio, debit ledger balance and credit balance are kept on the trial balance.


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Objectives of Trial Balance

8:04 AM imran ali

  1. To check arithmetical accuracy: Trial balance helps ot check the arithmetical accuracy. If the debit total of trial balance is equal to credit total, it proves that books of accounts are arithmetically accurate. However, disagreement of trial balance narrates us that there are some errors in the books of accounts.
  2. To detect the errors: Disagreement of trial balance simply indicates that there are some acounting errors that must be detected and rectified before final accounts are perpared. Trial balance helps to detect some errors like woring totaling and balancing of ledger accounts, wrong side and amount posting, posting of wrong balance in trial balance etc. However, it is required to note that all the errors are not revealed or disclosed by trial balance.
  3. To server as base for the preparation of final accounts: Final accounts are prepared on the basis of trial balance. A corect trial balance assures us to prepare the true final accounts. A trial balance itself is a summary of ledger balance where all the balances of all ledger accounts are available at one place. It facilitates the accountants to prepare final accounts.


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Trial Balance

7:51 AM imran ali

As per accounting process, financila transactions are firstly entered in primary book or journal and then they are posted to various concerned ledger accounts. Finally, they are transferred to final accounts. Before preparing final accounts, it is necessary to know that the books of accounts are accurate or not because a number of mistakes may have been committed while entering in primary books or posting them in ledgers. The "dual aspect" of book-keeping states that every transaction has two aspects i.e. debit and credit. Therefore, the debit balances of all the ledger accounts must be equal to credit balances. For this purpose, a statement is prepared at the end of a certain period, say monthly, half-yearly by taking debit and credit ledger balances which is called trial balance. It is prepared to check arithmetical accuracy of books of accounts. If the debit totla of trial balance is equal to credit total, it is assumed that there are no errors in the books of accounts. However, disagreement of the total of debit and credit side in the trial balance indicates that books of accounts are not maintained properly and errors have been committed. In other words, it is a statement rather than an account. It is prepared to test the accuracy for the preparation of final accounts.


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