Classwork Exercise and Series (Financial Accounting- SS 1): Trial Balance And Balancing The Ledger Account

Balancing the ledger accounts

The account must be balance off before extracting the trial balance at regular intervals during the financial year. It will be a matter of necessity to balance each account in order to ascertain the overall position recorded in the book-keeping system.

Procedure to balance the ledger account

1. In order to balance the an account it will be necessary to:
2. Add all items on the debit side
3. Add all items on the credit side.
4. Compare both side.
5. “debit balance” is an excess of debit items over credit items.
7. “credit balance “ is an excess of credit items over debit items.

The trial balance

Trial balance can be defined as the schedule or list that shows the debit and credit balances extracted from the ledgers,to show the arithmetical accuracy of the ledgers.the technique ensure that debit and credit balances as displayed in the ledgers are complied.the objective is to prove the accuracy of the book-keeping.

All ledger accounts must be balanced off and entered in the trial balance as explained above under balancing of accounts.

Uses of Trial balance

1. The trial balance helps in testing the accuracy of the double entry.
2. Helps in the preparation of the financial statements.

Rules of trial balance

1. All assets must be put on the debit side
2. All liabilities must be put on the credit side.
3. All income or gain must be put on the credit side.
4. All expenses must be recorded on the debit side

Format of trial balance

Trial balance                                                                  Dr                              CR

                                                                                      #                                   #

Capital                                                                                                                X

Plant and machinery                                                       X

Stock at beginning                                                           X

Purchases                                                                        X

Sales                                                                                                                      X

Rent and rates                                                                 X

Wages and salaries                                                           X

Advertisement                                                                 X

Sundry expenses                                                              X

Cash in hand                                                                    X

Bank overdraft                                                                 X

Debtors and creditors                                                       X

Furniture and fittings                                                        X

Bad debts                                                                         X

Provision of doubtful debt                                                                                                 X

Depreciation: furniture and fittings                                                                                   X

motor van                                                                          X

Carriage outwards                                                              X

Carriage inwards                                                                 X

Returns                                                                               X

Lightening                                                                           X

Telephone                                                                            X

Discount received                                                                                                                   X

Discount allowed                                                                   X

Drawings                                                                               X

5% loan                                                                                  X                                                         

                                                                                              X                                                  X

Errors of trial balance

1. Disclosed errors
2. Undisclosed errors

Disclosed errors:  are errors that when it occur it will affect the final figure of the trial balance i.e the trial balance will not balance

Disclosed are;

1. Error of posting
2. Wrong figure in the ledger
3. Wrong entries in the ledger
4. Errors in addition i.e overcasting or undercasting
5. Unextracted balance from the ledger
6. Extracted balance placed on the wrong side of the trial balance.

Errors not disclosed by the trial balance

1. Error of omission: this is when an item is completely omitted from the debit and credit sides of the books.
2. Error of commission: this occurs when the an item is entered in a wrong person’s account.
3. Error of original entry: this is when a wrong amount is entered on the debit and on the credit side of the accounts.
4. Error of complete reversal of entry: here the item is entered on the wrong side of the account i.e an item to be debited had been credited and vice versa.
5. Error of principle: this is when an item is entered in a wrong class of account.
6. Compensating errors: this occur when errors cancelled out each other.

Procedures for correction of errors

When errors are made in the account,the following steps should be made to correct such error

• Identification of such error
• Identification of the two accounts involved.
• Familiarity with whether an account has debit or credit balance,this can be explained as

All assets accounts must have debit balance

All liabilities must have credit balance

All income must have credit balance.

All expenses must have debit balance.

Sales account must have credit balance

Purchase account must have debit balance

Interpret the errors in the ledger

Correct the ledgers first before posting to the journal.

For more notes; see: https://passnownow.com/classwork-support/