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 total method, balance method and compound method.
Balance method is most popular, therefore, this method is applied in this book and ebook.
Step 1, Prepare journal entries,
Step 2, Prepare ledger accounts from journal entries,
Step 3, Find out debit or credit balance of ledger account (balance b/d),
Step 4, Transfer debit balance b/d to debit column of trail balance,
Step 5, Transfer credit balance b/d to credit column of trail balance,
Step 6, Do the sum or total of trial balance, debit and credit must be equal.
Note: if debit and credit of trail balance is not equal recheck above procedures
PROBLEM: 5
Manoj Sharma started AutoCAD consulting firm called MS AutoCAD Services; he has following transactions:
1: Cash contributed Rs 3,00,000 as capital.
2: Office equipment purchased on credit Rs 160,000.
3: Motor bike bought for Rs 1,90,000; paying Rs 90,000 in cash and signing a 14% loan agreement for the rest.
4: Paid Rs 6,000 for insurance of office assets.
5: Office supplies purchased on credit Rs 7,000.
6: Completed an AutoCAD assignment and received Rs 14,000 cash.
7: Received advance from a customer for assignment to be completed in August Rs 4,000
8: Invoiced a client for services completed Rs 12,000.
9: Cash paid of office equipment Rs 60,000.
10: Utility bills paid Rs 3,250.
You are required to: (a) Journalise the above transactions by using accounting code and ledger folio number;
(b) Ledger account in continuous balance form
Account codes:
Accounts payable |
200 |
Cash |
100 |
Capital |
300 |
Account receivable |
130 |
Insurance |
110 |
Office equipment |
180 |
Advance income |
220 |
Loan payable |
210 |
Service revenue |
400 |
Office materials |
120 |
Vehicle |
160 |
Utility |
500 |
*Invoiced = account receivable
SOLUTION
(A) Journal Entries
Journal Entries
In MS AutoCAD Services
Date |
Particulars |
|
A/c |
LF |
Debit |
Credit |
|
|
|
Code |
No. |
Amount |
Amount |
|
Cash account |
Dr |
100 |
2 |
300,000 |
|
July 1 |
To Capital account |
|
300 |
1 |
|
300,000 |
|
(Being- business started with cash) |
|
|
|
|
|
2 |
Equipment |
Dr |
180 |
3 |
160,000 |
|
|
To Accounts payable |
|
200 |
4 |
|
160,000 |
|
(Being- office equipment purchased on credit) |
|
|
|
|
|
3 |
Motor Bike account |
Dr |
160 |
5 |
190,000 |
|
|
To Cash account |
|
100 |
2 |
|
90,000 |
|
To 14% Loan account |
|
210 |
6 |
|
100,000 |
|
(Being- bike purchase and partial payment paid) |
|
|
|
|
|
4 |
Insurance account |
Dr |
110 |
7 |
6,000 |
|
|
To Cash |
|
100 |
2 |
|
6,000 |
|
(Being- insurance policy bought) |
|
|
|
|
|
5 |
Office supplies account |
Dr |
120 |
8 |
7,000 |
|
|
To Accounts payable |
|
200 |
4 |
|
7,000 |
|
(Being- office materials purchased on credit) |
|
|
|
|
|
6 |
Cash account |
Dr |
100 |
2 |
14,000 |
|
|
To Service revenue |
|
400 |
9 |
|
14,000 |
|
(Being- revenue received) |
|
|
|
|
|
7 |
Cash account |
Dr |
100 |
2 |
4,000 |
|
|
To Advance service revenue |
|
220 |
10 |
|
4,000 |
|
(Being- advance revenue received) |
|
|
|
|
|
8 |
Accounts receivable account |
Dr |
130 |
11 |
12,000 |
|
|
To Service revenue |
|
400 |
9 |
|
12,000 |
|
(Being- billing for services rendered) |
|
|
|
|
|
9 |
Account payable account |
Dr |
200 |
4 |
60,000 |
|
|
To Cash account |
|
100 |
2 |
|
60,000 |
|
(Being: partial payment made for equipment) |
|
|
|
|
|
10 |
Utility bills account |
Dr |
500 |
12 |
3,250 |
|
|
To Cash account |
|
100 |
2 |
|
3,250 |
|
(Being: utility bills paid) |
|
|
|
|
|
#######
Click on link for YouTube videos topic wise : |
|
Accounting Equation |
|
Basic Journal Entries in Nepali |
|
Basic Journal Entries |
|
Journal Entry and Ledger |
|
Ledger Account |
|
Subsidiary Book |
|
Cash Book |
|
Trial Balance and Adjusted Trial Balance |
|
Bank Reconciliation Statement (BRS) |
|
Depreciation |
|
Click on link for YouTube videos chapter wise: |
|
Financial Accounting and Analysis (All videos) |
|
Accounting Process |
|
Accounting for Long Lived Assets |
|
Analysis of Financial Statement |
(b) Ledger account in continuous balance form
Cash Account (2)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 1 |
Capital |
1 |
300,000 |
|
300,000 |
Dr |
July 3 |
Moto bike |
5 |
|
90,000 |
210,000 |
Dr |
July 4 |
Insurance |
7 |
|
6,000 |
204,000 |
Dr |
July 6 |
Service revenue |
9 |
14,000 |
|
218,000 |
Dr |
July 7 |
Advance service revenue |
10 |
4,000 |
|
222,000 |
Dr |
July 9 |
Account payable |
4 |
|
60,000 |
162,000 |
Dr |
July 10 |
Utility bills |
12 |
|
3,250 |
158,750 |
Dr |
|
|
|
|
|
|
|
Capital Account (1)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 1 |
Cash |
2 |
|
300,000 |
300,000 |
Cr |
|
|
|
|
|
|
|
Equipment Account (3)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 2 |
Account payable |
4 |
160,000 |
|
160,000 |
Dr |
|
|
|
|
|
|
|
Account Payable Account (4)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 2 |
Equipment |
3 |
|
160,000 |
160,000 |
Cr |
July 5 |
Office supplies |
8 |
|
7,000 |
167,000 |
Cr |
July 9 |
Cash |
2 |
60,000 |
|
107,000 |
Cr |
|
|
|
|
|
|
|
Moto Bike Account (5)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 3 |
Cash |
2 |
90,000 |
|
90,000 |
Dr |
July 3 |
14% Loan |
6 |
100,000 |
|
190,000 |
|
|
|
|
|
|
|
|
14% Loan Account (6)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 3 |
Motor bike |
5 |
|
100,000 |
100,000 |
Cr |
|
|
|
|
|
|
|
Insurance Account (7)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 4 |
Cash |
2 |
6,000 |
|
6,000 |
Dr |
|
|
|
|
|
|
|
Office Supplies Account (8)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 5 |
Account payable |
4 |
7,000 |
|
7,000 |
Dr |
|
|
|
|
|
|
|
Service Revenue Account (9)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 6 |
Cash |
2 |
0 |
14,000 |
14,000 |
Cr |
July 8 |
|
11 |
|
12,000 |
26,000 |
Cr |
|
|
|
|
|
|
|
Advance Service Revenue Account (10)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 7 |
Cash |
2 |
|
4,000 |
4,000 |
Cr |
|
|
|
|
|
|
|
Account Receivable Account (11)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 8 |
Service revenue |
9 |
12,000 |
|
12,000 |
Dr |
|
|
|
|
|
|
|
Utility Bills Account (12)
Date |
Particulars |
LF |
Debit |
Credit |
Balance |
Dr/Cr |
July 10 |
Cash |
2 |
3,250 |
|
3,250 |
Dr |
|
|
|
|
|
|
|
Trial Balance of MS AutoCAD Services
SN |
Name of the ledgers |
Amount Dr |
Amount Cr |
2 |
Cash |
158,750 |
|
2 |
Capital |
|
300,000 |
3 |
Equipment |
160,000 |
|
4 |
Account payable |
|
107,000 |
5 |
Motor bike |
190,000 |
|
6 |
14% Loan |
|
100,000 |
7 |
Insurance |
6,000 |
|
8 |
Office supplies |
7,000 |
|
9 |
Service revenue |
|
26,000 |
10 |
Advance service revenue |
|
4,000 |
11 |
Account receivable |
12,000 |
|
12 |
Utility bills |
3,250 |
|
|
|
537,000 |
537,000 |
#######
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