Balance method of trial balance

This is the most widely used method in practice. Under this method, a trial balance is prepared by showing the balances of all ledger accounts and then totalling up the debit and credit columns of the trial balance to assure their correctness.

The account balances are used because the balance summarises the net effect of all transactions relating to an account and helps in preparing the financial statements. It may be noted that in the trial balance, normally in place of balances in individual accounts of the debtors, a figure of sundry debtors is shown, and in place of individual accounts of creditors, a figure of sundry creditors is shown.

This method is a combination of the totals method and balances method. Under this method, four columns for amount are prepared. Two columns for writing the debit and credit totals of various accounts and two columns for writing the debit and credit balances of these accounts. However, this method is also not used in practice because it is time-consuming and hardly serves any additional or special purpose. Followings are the classification of errors in the trial balance :.

Keeping in view the nature of errors, all the errors can be classified into the following four categories:. These are the errors that are committed due to wrong posting of transactions, wrong totalling or wrong balancing of the accounts, the wrong casting of the subsidiary books, or wrong recording of the amount in the books of original entry, etc. This transaction was correctly recorded in the cashbook.

This constitutes an error of commission. Such an error by definition is of clerical nature and most of the errors of commission affect the trial balance. The errors of omission may be committed at the time of recording the transaction in the books of original entry or while posting to the ledger. These can be of two types:. When a transaction is completely omitted from recording in the books of the original record, it is an error of complete omission. For example , credit sales to Mohan Rs 10,, not entered in the sales book.

When the recording of the transaction is partly omitted from the books, it is an error of partial omission. Accounting entries are recorded as per the generally accepted accounting principles. If any of these principles are violated or ignored, errors resulting from such violations are known as errors of principle. An error of principle may occur due to incorrect classification of expenditure or receipt between capital and revenue.

This is very important because it will have an impact on financial statements. It may lead to under or overstating of income or assets or liabilities, etc. For example , the amount spent on additions to the buildings should be treated as capital expenditure and must be debited to the asset account. Instead, if this amount is debited to the maintenance and repairs account, it has been treated as a revenue expense.

This method consumes a lot of time and is a duplicate of work. Hence, it is rarely in use. Question: From the following information prepare a trial balance using all three methods. Totals Method Trial Balance as at….. Balances Method Trial Balance as at….. Totals-cum- Balances Method Trial Balance as at….. Preparation of Trial Balance A Trial Balance is a statement that shows the total debit and total credit balances of accounts.

Example: Question: From the following information prepare a trial balance using all three methods. It acts as a quick reference. So that we can easily find out the balance in any ledger account without actually referring to the ledger. If the classification of ledger accounts is systematically done in the trial balance, one can do quick time analysis. Tally Solutions Nov Latest Blogs. Accounting solutions to help you manage your business just the way you want.

Take a free trial now. It promotes the arithmetical accuracy of the accounts. Preparation of final accounts is not possible. It helps in the easy preparation of final accounts.