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There are three methods of preparing trial balance. The total of both the debit and credit column the trial balance must be equal in all the methods. The following methods can be used for preparing balance:

1. Balance method

2. Total method

3. Total and Balance method

 

l. Balance Method

Trial balance, as its name itself points out is prepared with the balance of ledger accounts. Every ledger account has got the debit and credit side. At the end of a certain period, ledger accounts are balanced Excess of the total of the debit side of an account over its credit side is known as debit balance and written in the debit column of the trial balance. In the same way, excess of credit side of an account over its debit side shows credit balance and will be written at the credit side of the trial balance. The total of both the debit and credit side must be equal.

 

2. Total Method

According to this method, the total of the debit and credit side of every account is separately written in the debit and credit column of the trial balance. The total of both the debit and credit must be equal. If it is not equal, there are definitely certain errors which should be located and rectified.

 

3. Total and Balance Method

This method presents both the balance and total method in the same trial balance. The amount column is divided between total and balance methods. Each method has further two columns of debit and credit. The total of the debit and credit under each method must be equal. There will be different totals according to the different methods but the total of debit and credit of each method will be equal.

 

Illustration 1. Pass journal entries with the following information. Also prepare ledger accounts and trial balance.

2005                                                                                                                            $

Jan. 1   Michael started business with cash ………………………………………. ….. …. 20,000

Jan. 3 He opens a current account in the bank…….. ………….. …….. …………. …….. 5,000

Jan. 7 Purchased goods on credit from Nancy ………. ……………………….. …………. 4,000

Jan. 10 Paid to Nancy in full settlement .. ……………………………….. …………………. 3,900

Jan. 13 Machinery purchased…. … ………. ……….. …………… …………………….. …… 2,000

Jan. 16 Goods sold to Rana …………………………. ………………………….. ……………… 3,000

Jan. 18 Amount received from Rana …………………………………………………. ………. 1,000

Jan. 20 Salaries paid……………………………………….. ……………. …………………………. . 700

Jan. 23 Rent received ……………………… ……. ……….. …… ….. …… ……………………. .. 300

Jan. 28 Goods purchased from Rohit ……………. ……………………………… …………… 4,000

Jan. 31 Interest on capital @ 10%for the month

Jan. 31 Depreciation on machinery…… … …… ………… …………… ………… ………200

 

Solution.

Journal Entries

Ledger Accounts

Cash Account

                                                    Dr.                                                                                                                                          Cr.

Bank A/c

                                                           Dr.                                                                                                                                          Cr.

Purchases A/c

                                                                Dr.                                                                                                                                          Cr.

  

Nancy’s A/c

                                                             Dr.                                                                                                                                          Cr.

 Discount Received A/c

                                                           Dr.                                                                                                                                          Cr.

 

Capital A/c

                                                            Dr.                                                                                                                                          Cr.

  

Machinery A/c

                                                     Dr.                                                                                                                                          Cr.

  

Rana’s A/c

                                                           Dr.                                                                                                                                          Cr.

 

Salaries A/c

                                                         Dr.                                                                                                                                          Cr.

  

Sales A/c

                                                               Dr.                                                                                                                                          Cr.

  

Rent A/c

                                                            Dr.                                                                                                                                          Cr.

 

Rohit’s A/c

                                                               Dr.                                                                                                                                          Cr.

 

Interest on Capital A/c

                                                            Dr.                                                                                                                                          Cr.

Depreciation A/c

                                                          Dr.                                                                                                                                          Cr.

1. Balance Method 

Trial Balance

as on January 31, 2005

Name of the Accounts L.F.

 

Amount

Debit

$

Credit

$

Cash A/c

Capital A/c

Bank A/c

Purchases A/c

Discount A/c

Machinery A/c

Rana’s A/c

Salaries A/c

Sales A/c

Rent A/c

Depreciation A/c

Rohit’s A/c

Interest on Capital A/c

 

9,700

 

5,000

8,000

 

1,900

2,000

700

 

 

100

 

167

 

20,167

 

100

 

 

 

 

3,000

300

 

4,000

 

27,567

27,567

 

Explanation :

(i)                            The trial balance, prepared as above contains the list of a ll ledger accounts except Nancy’s account which is closed and does not show any balance (the total of the debit and credit of Nancy’s account are equal).

(ii)                          Cash account, bank account, purchases account, machinery account, Rama’s account, salaries account, depreciation account and interest on capital account show debit balance (excess of debit over credit) SQ the balance has been shown in the debit column. In the same way, capital account, discount account, sales account, rent account and Rohit’s account show credit balance, so the amount has been written in the credit col urn n.

(iii)                        The total of the debit and credit side each is $ 27,567 and is equal.

 

 2. Total Method

Trial Balance

as on January 31, 2005

Name of the Accounts L.F.

 

Amount

Debit

$

Credit

$

Cash A/c

Capital A/c

Bank A/c

Purchases A/c

Discount A/c

Machinery A/c

Rana’s A/c

Salaries A/c

Sales A/c

Rent A/c

Depreciation A/c

Rohit’s A/c

Interest on Capital A/c

 

21,300

 

5,000

8,000

4,000

 

2,000

3,000

700

 

 

100

 

167

11,600

20,167

 

 

4,000

100

100

1,000

 

3,000

300

 

4,000

 

 

44,267

44,267

 

Explanation: (i) Trial balance has the list of all the ledger accounts including Nancy’s account which was dropped from the balance method. Ca.sh account, Nancy’s account, machinery account and Rana’s account have posting at the debit and also at credit side, so the total of their debit side is written in the debit column and the total of the credit side is written in the credit column. Bank account, purchases account, salaries account, depreciation account and interest on capital account have posting only at their debit side so their totals have been written only at the debit side. In the same way, capital account, discount account, sales account, rent account and Rohit’s account have posting only at the credit side, so the amount has been written in the credit column.

(ii) The total of debit and credit columns according to this method is also equal.

(iii) Total and Balance Method

 

Trial Balance

as on January 31, 2005 

Name of the Accounts L.F.

 

Total Method

Balance Method

Debit

$

Credit

$

Debit

$

Credit

$

Cash A/c

Capital A/c

Bank A/c

Purchases A/c

Discount A/c

Machinery A/c

Rana’s A/c

Salaries A/c

Sales A/c

Rent A/c

Depreciation A/c

Rohit’s A/c

Interest on Capital A/c

 

21,300

 

5,000

8,000

4,000

 

2,000

3,000

700

 

 

100

 

167

11,600

20,167

 

 

4,000

100

100

1,000

 

3,000

300

 

4,000

 

9,700

 

5,000

8,000

 

 

1,900

2,000

700

 

 

100

 

167

,20,167

 

 

 

 

100

 

 

 

3,000

300

 

4,000

44,267

44,267

44,267

44,267

 

Explanation. The amount column is divided between total and balance methods. Each method has got its own debit and credit column. Names of all ledger accounts are enlisted. The debit and credit total of every account is posted in the total method. The balance of accounts has been written in the balance method. The total of the total method is $ 44,267 as per both the debit and credit side. The total of the debit and credit columns under balance method is $ 27,567 and are also equal.

 

Illustration 2. The following trial balaA/ce was drawn from the books of Rana Traders on 31-12-2006:

Trial BalaA/ce

Debit                                                   $                      Credit                          $

 

Building                                               60,000             Capital                                    73,600

Machinery                                           17,000             Fixtures                                   5,600

Returns outward                                  2,600               Sales                                   1,04,000

Bad debts                                            2,800               Debtors                                   60,000

Cash                                                    400                  Interest Received                     2,600

Discount received                                3,000

Bank overdraft                                    10,000

Creditors                                             50,000

Purchases                                            1,00,000

2,45,800                                                    2,45,000

Even though the debit and credit sides agree, the trial balaA/ce contains certain mistakes. Redraft the Trial BalaA/ce.

 

Solution.

Redrafted Trial BalaA/ce

as on 31-12-2006

Name of the Accounts L.F.

 

Amount

Debit

$

Credit

$

Building A/c

Machinery A/c

Returns outward A/c

Bad debts A/c

Cash A/c

Discount received A/c

Bank overdraft A/c

Creditors A/c.

Purchases A/c

Capital A/c.

Fixtures A/c

Sales A/c

Debtors A/c

Interest received A/c

 

60,000

17,000

 

2,800

400

 

 

 

1,00,000

 

5,600

 

60,000

 

 

2,600

 

 

3,000

10,000

50,000

 

73,600

 

1,04,000

 

2,600

2,45,800

2,45,800