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Preparation of Trial Balance (Journal Entries, Ledger Accounts and Trial Balance)

Arjun EP

Published on: November 2, 2020

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Preparation of trial balance

Trial balance is prepared to check arithmetical accuracy of debit and credit balance.

If there is any error, it is rectified with journal entries.

Trial balance can be prepared at any time.

Generally, it is prepared at the end of every month.

But it can be prepared quarterly or half yearly.

It is compulsorily prepared at the close of every accounting period to verify the arithmetical accuracy of the ledger accounts.

Methods of preparation of trial balance

There are three methods to prepare trial balance. They are as follows:

Total method

Under total method, trial balance is prepared by taking the total of debits and credit of all ledger accounts.

Balance method

Under balance method, only the balances of all the ledger accounts are taken to prepare the trial balance.

Balance method is the most popular method to prepare trial balance.

This method is applied in this book and ebook.

Compound method

Compound method is the combination of both total method and balance methods.

Compound method is also known as total-cum-balance method.

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country

PROBLEM: 3A

Kalika Traders has following ledgers. From these accounting ledgers, prepare trial balance:

(a)

Capital Account

Date	Particulars	LF	Amount	Date	Particulars	LF	Amount
	To Balance c/d		1,00,000		By Bank account		1,00,000
			1,00,000				1,00,000
					By Balance b/d		1,00,000

Cash Account

Date	Particulars	LF	Amount	Date	Particulars	LF	Amount
	To Capital		1,00,000		By Rent		10,000
	To Sales		60,000		By Salary		15,000
					By Drawings		5,000
					By Purchase		50,000
					By Balance c/d		80,000
			1,60,000				1,60,000
	To Balance b/d		80,000

Purchase Account

Date	Particulars	LF	Amount	Date	Particulars	LF	Amount
	To Cash		50,000		By Balance c/d		50,000
			50,000				50,000
	To Balance b/d		50,000

Sales Account

Date	Particulars	LF	Amount	Date	Particulars	LF	Amount
	To Balance c/d		60,000		By cash		60,000
			60,000				60,000
					By Balance b/d		60,000

Rent Account

Date	Particulars	LF	Amount	Date	Particulars	LF	Amount
	To Cash		10,000		By Balance c/d		10,000
			10,000				10,000
	To Balance b/d		10,000

Salary Account

Date	Particulars	LF	Amount	Date	Particulars	LF	Amount
	To Cash		15,000		By Balance c/d		15,000
			15,000				15,000
	To Balance b/d		15,000

Drawings Account

Date	Particulars	LF	Amount	Date	Particulars	LF	Amount
	To Cash		5,000		By Balance c/d		5,000
			5,000				5,000
	To Balance b/d		5,000

Keep in Mind (KIM)

Debit brought down balance (balance b/d) is written in debit side of trial balance.

Credit brought down balance (balance b/d) is written in credit side of trial balance.

Debit carried down balance (balance c/d) is written in credit side of trial balance.

Credit carried down balance (balance c/d) is written in debit side of trial balance.

In total method, debit total and credit total of ledgers are recorded in trial balance

In balance method, only balance b/d amount of ledgers are recorded in trial balance.

Trial Balance of Kalika Traders (Total Method)

SN	Name of Ledgers	Amount Dr	Amount Cr
1	Capital		1,00,000
2	Cash	160,000	80,000
3	Purchase	50,000
4	Sales		60,000
5	Rent	10,000
6	Salary	15,000
7	Drawings	5,000
	Total	240,000	240,000

Trial Balance of Kalika Traders (Balance Method)

SN	Name of Ledgers	Amount Dr	Amount Cr
1	Capital		1,00,000
2	Cash	80,000
3	Purchase	50,000
4	Sales		60,000
5	Rent	10,000
6	Salary	15,000
7	Drawings	5,000
	Total	1,60,000	1,60,000

Trial Balance of Kalika Traders (Total and Balance Method)

SN	Name of Ledgers	Total Method		Balance Method
		Amount Dr	Amount Cr	Amount Dr	Amount Cr
1	Capital		1,00,000		1,00,000
2	Cash	160,000	80,000	80,000
3	Purchase	50,000		50,000
4	Sales		60,000		60,000
5	Rent	10,000		10,000
6	Salary	15,000		15,000
7	Drawings	5,000		5,000
	Total	240,000	240,000	1,60,000	1,60,000

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Click on link for YouTube videos:
Basic Journal Entries in Nepali	http://tiny.cc/uaakkz
Basic Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cash Book	http://tiny.cc/889jkz
Trial Balance & Adjusted Trial Balance	http://tiny.cc/c59jkz
Final Accounts	http://tiny.cc/y89jkz
Government Accounting	http://tiny.cc/hcakkz
Goswara Voucher (Journal Voucher)	http://tiny.cc/hcakkz

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PROBLEM: 3B

The following transactions are given by EP Traders during the month of March:

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country

(a) Invested $/₹/Rs 300,000 cash in the business as capital.

(b) Machinery purchased at cost of Rs 120,000. Paid Rs 40,000 as down payment and the rest after 3 months

(d) Purchased inventory on account Rs 200,000.

(e) Sale of inventory on account Rs 120,000 and for cash Rs 160,000.

(f) Advance rent paid Rs 20,000.

(g) Received Rs 90,000 from customers.

(h) Paid Rs 50,000 on accounts payable.

(i) Loan taken from Mega Bank Rs 100,000.

(j) Kamal withdrew Rs 16,000 cash for personal use.

You are required to: (a) Record the above transactions in a journal;

(b) Post the journals in vertical format of ledgers; (c) Prepare a trial balance

[Answer: Trial balance = 910,000]

SOLUTION:

Journal Entries

In the book of EP Traders

Date	Particulars		LF	Amount Dr	Amount Cr
	Cash account	Dr	1	300,000
	To Capital account		2		300,000
	(Being- business started with cash)
	Machinery account	Dr	3	120,000
	To Cash account		1		40,000
	To Bills payable account		4		80,000
	(Being- machinery purchased and part payment in cash)
	Equipment account	Dr	5	50,000
	To Cash		1		50,000
	Record of purchase of equipment
	Purchases account	Dr	6	200,000
	To Bills payable account		4		200,000
	(Being- goods purchased on credit)
	Cash account	Dr	1	160,000
	Bills receivable account	Dr	7	120,000
	To Sales account		8		280,000
	(Being- goods sold for cash and credit)
	Advance rent account	Dr	9	40,000
	To Cash account		1		40,000
	(Being- advance rent paid)
	Cash account	Dr	1	90,000
	To Bills receivable		7		90,000
	(Being- cash received from accounts receivable)
	Bills payable	Dr	4	50,000
	To Cash		1		50,000
	(Being- cash paid for accounts payable)
	Cash account	Dr	1	100,000
	To Mega Bank Loan		10		100,000
	(Being- loan received from Mega Bank)
	Drawings account	Dr	11	16,000
	To Cash assets		1		16,000
	(Being- cash withdrawn for personal use)

Cash Account (LF 1)

Date	Particulars	LF	Debit	Credit	Balance
	Capital		300,000		300,000	Dr
	Machinery			40,000	260,000	Dr
	Equipment			50,000	210,000	Dr
	Sales		100,000		370,000	Dr
	Advance rent			40,000	330,000	Dr
	Bills receivable		90,000		420,000	Dr
	Bills payable			50,000	370,000	Dr
	Mega Bank loan		100,000		470,000	Dr
	Drawings			16,000	454,000	Dr

Capital Account (LF 2)

Date	Particulars	LF	Debit	Credit	Balance
	Cash			300,000	300,000	Cr

Machinery Account (LF 3)

Date	Particulars	LF	Debit	Credit	Balance
	Cash		40,000		40,000	Dr
	Bills payable		80,000		120,000	Dr

Bills Payable Account (LF 4)

Date	Particulars	LF	Debit	Credit	Balance
	Machinery			80,000	80,000	Cr
	Purchase			200,000	280,000	Cr
	Cash		50,000		230,000	Cr

Equipment Account (LF 5)

Date	Particulars	LF	Debit	Credit	Balance
	Cash		50,000		50,000	Dr

Purchase Account (LF 6)

Date	Particulars	LF	Debit	Credit	Balance
	Bills payable		200,000		200,000	Dr

Bills Receivable Account (LF 7)

Date	Particulars	LF	Debit	Credit	Balance
	Sales		120,000		120,000	Dr
	Cash			90,000	30,000	Dr

Sales Account (LK 8)

Date	Particulars	LF	Debit	Credit	Balance
	Cash			160,000	160,000	Cr
	Bills receivable			120,000	280,000	Cr

Advance Rent Account (LF 9)

Date	Particulars	LF	Debit	Credit	Balance
	Cash		40,000		40,000	Dr

Mega Bank Loan Account (LF 10)

Date	Particulars	LF	Debit	Credit	Balance
	Cash			100,000	100,000	Cr

Drawings Account (LF 11)

Date	Particulars	LF	Debit	Credit	Balance
	Cash		16,000		16,000	Dr

Trial Balance of EP Traders

SN	Name of Ledgers	LF	Amount Dr	Amount Cr
1	Cash	1	4,54,000
2	Capital	2		3,00,000
3	Machinery	3	1,20,000
4	Bills payable	4		2,30,000
5	Equipment	5	50,000
6	Purchase	6	2,00,000
7	Bills receivable	7	30,000
8	Sales	8		2,80,000
9	Advance rent	9	40,000
10	Mega Bank loan	10		1,00,000
11	Drawings	11	16,000
	Total		9,10,000	9,10,000

*******

PROBLEMS AND ANSWERS

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country

PROBLEM: 3

Srijana started a sole proprietorship business on 1^st June named SA Impex. The following transactions in the first two weeks: (All transactions are through bank)

1 July,	Bank account was opened by depositing $/₹/Rs 160,000.
2 July,	Second hand bike purchased for Rs 50,000 paying by cheque.
3 July,	Signs a rental agreement for office space for 5 years @ Rs 24,000 per annum.
4 July,	Office equipment purchased from BK Suppliers Rs 30,000.
5 July,	Goods purchased costing Rs 40,000 on credit from AK Traders
6 July,	Advertising expenses payable to ‘The Kantipur’ at a cost of Rs 15,000
8 July,	First rental instalment paid for the month by a cheque.
9 July,	Goods sold for Rs 35,000 in cash.
10 July,	Goods sold for Rs 5,000.
11 July,	Telephone installation paid Rs 8,500 out of which Rs 5,000 is security deposit.
12 July,	Advertising expenses paid in full and Rs 20,000 paid to AK Traders.
13 July,	Further goods purchased of Rs 100,000 from AK Traders.
15 July,	Drew Rs 1,000 from bank for personal use.