CS Exam Accountancy: Trial Balance

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Trial Balance and Steps for Making Trial Balance

Definition of Trial Balance

Trial balance is the statement which shows the list of balance of all ledger accounts. It is made for checking mathematical error, making of final accounts and maintaining budget of company. Because of it is made on basis of company՚s all ledger accounts, so we satisfy about mathematical correctness, if debit balance of this statement is equal to credit balance of this statement.

Steps for Making Trial Balance

1st Step

Making all ledger accounts and the calculate their balance, if any account՚s debit side is more than credit balance, its balance will be called debit balance, if the credit balance is more than debit side balance, it is called credit balance.

2nd Step

Make statement in vertical form in which you have show particular for making the list of account and right side, you have to debit balance and credit balance. Performa of Trial balance S. No. Particular? Debit Balance? Credit balance?

3rd Step: Debit Balance

  1. assets account՚s balance
  2. expenses account balance
  3. loss account՚s balance
  4. investment account balance
  5. drawing account՚s balance
  6. Purchase account
  7. Sale return Account

4th Step: Credit Balance

  1. Liabilities account՚s balance
  2. Provision account՚s balance
  3. Capital account՚s balance
  4. Reserve and surplus account՚s balance
  5. Sale account
  6. Purchase return account

5th Step

If trial balance is not matched, the difference will be show as suspense account

Important Notes

Closing Stock is not shown in trial balance because, it is adjusting item and we can give dual effect on final account. All other items whose account is not made in proper ledger will not shown in trial balance.

Different Types of Expenses

In accounting, there are only revenue nature and capital nature expenses. Revenue nature expenses records in profit and loss account while capital nature expenses are recorded in balance sheet.

Direct Expenses

Revenue expenses are again subpart of direct expenses and indirect expenses

Direct expenses are the main type of expenses which are related to production and purchase of goods. These expenses are incurred during the purchase of goods and transfer to trading account. I am giving the examples of direct expenses:

  • Wages
  • Freight
  • Carriage
  • Carriage inward
  • Octrai
  • Royalty on production
  • Factory expenses
  • Factory depreciation
  • Fuel, oil and power
  • All other expenses related to purchase of goods

Indirect Expenses

  • Office expenses
  • Sales expenses
  • Advertising
  • Administrative expenses
  • Bad debts
  • Depreciation of office assets
  • Interest on loan
  • All other expenses relating to sale and marketing

Simple Income Statement

  • Sales Net XXXX
  • Less cost of goods sold XXXX
  • or merchandising cost XXXX
  • Gross profit XXXX
  • Less operating expenses XXXX
  • office and administrative expenses
  • selling and distribution expenses
  • Financial expenses
  • Net Income XXXX
  • Net sales refer to total sales less sales returns and are calculated as follows
  • Cash sales XXXX
  • credit sales XXXX
  • total sales XXXX
  • less sales return XXXX
  • Net sales
  • Cost of goods sold means the cost price or cost of manufacture of the goods or commodities actually sold and is
  • calculated as follows.
  • Opening stock XXXX
  • add purchase less purchase returns XXXX
  • add direct expenses XXXX
  • less closing stock XXXX
  • cost of goods sold XXXX