How to draw up a Trial Balance ?

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After pupils learn how to post the double entry, the next segment is to draw up a trial balance.

Pupils always find out this is one of the easier topic in the POA once they able to differentiate all the accounting elements.  The blog will bring all of you through this journey of identifying the elements and how it will need to be placed in the Trial Balance.


What is a Trial Balance?

It is a statement prepared periodically, listing all the balances in the accounts of the business.

What are the purposes of preparing a Trial Balance?

1.  To check the arithmetical accuracy/errors of recording transactions
2.  To make it easier for the preparation of the financial statements.

How does a Trial Balance look like?

It has 2 columns - debit column and credit column

Rules for preparing Trial Balance
1. Debit balances in the ledger = put in the debit column
2. Credit balances in the ledger = put in the credit column

To prepare a Trial Balance, let us use ALICE rule:-

A = Assets
L = Liabilities
I = Income
C = Capital
E = Expenses

        
Dr

Cr
+
Assets
-
-
Liabilities
+
-
Income
+
-
Capital
+
+
Expenses
-


We will only look at the positive side to place the value into the Trial balance


Question 1
The following balances are taken from Bobby Enterprise as at 31 December 2019
$
cost of sales 82,100
Sales revenue 110,900
Sales returns 650
Insurance 5,153
Cash at bank 3,410
Trade receivable 15,200
Trade payable 9,470
Office Equipment 21,000
Drawings 3,000
Capital (1 January 2019) 10,143
Prepare the Trial Balance for Bobby's business as at 31 December 2019

 From the above, we first identify items that are Assets, Liabilities, Income, Capital, Expenses

Assets  = Cash at bank, Trade receivable, office equipment
Liabilities = Trade payable
Income = Sales revenue
Capital = Capital ( 1 January 2019)
Expenses = insurance, cost of sales

So, Assets (+), Expenses (+) are on the Dr side based on the ALICE rule. 
While, Liabilites(+), Income (+) and Capital (+) are on the Cr side based on the ALICE rule.

So we will put them accordingly in the Trial balance.

Then you will also discovered that items like Sales returns, Drawings that are not in the rule.

We take Drawings as a NEGATIVE Capital, so based on the ALICE rule, Drawings = (-) Capital, so will be on the DR side of the Trial balance.
Sales returns is a NEGATIVE Sales Revenue, so based on the ALICE rule, Sales returns = (-) Sales revenue will also be on the Dr side of the Trial Balance.


Bobby's Enterprise
Trial Balance as at 31 December 2019
Debit Credit
$ $
Cost of sales 82100
Sales revenue 110,900
Sales returns 650
Insurance 5,153
Cash at bank 3,410
Trade receivable 15,200
Trade payable 9,470
Office Equipment 21,000
Drawings 3,000
Capital (1 January 2019) 10143
130513 130513

Question 2

The following balances are taken from the books of  Mindy Enterprise on 31 December 2019:
    $
Cash at bank
600
Bank charges
750
Property
70500
Capital, 1 January 2019
??
Cash in hand
2100
Commission Received
2200
Trade payable
3200
Trade Receivable
15870
Drawings
110
Office Equipment
5250
Bank loan
8500
Cost of Sales
34000
Rent expense
12500
Sales Returns
550
Sales Revenue
66100
Wages & Salaries
5600

Prepare the Trial Balance as at 31 December 2019


By using the ALICE rule again,  We can identify

Assets = cash at bank, Property, cash in hand, Trade receviable, office equipment ---Dr side
Liabilities = Trade payables, bank loan  --  Cr side
Income = commission income, sales revenue  --- Cr side
Capital = Capital , 1 January 2019 -- Cr side
Expenses = Bank charges, Rent expense, cost of sales, wages and salaries -- Dr side

Sales returns = - sales revenue  -- Dr side
Drawings = - capital  -- Dr side
To find capital = Total debit - Total credit                         
MindyEnterprise
Trial Balance as at 31 December 2019
Dr Cr
$ $
Cash at bank 600
bank charges 750
Property 70500
Capital (1 January 2019) 67,830
cash in hand 2,100
Commission received 2,200
Trade Payable 3,200
Trade receivable 15,870
Drawings 110
Office Equpment 5,250
Bank loan 8,500
Cost of sales 34,000
Rent Expense 12500
Sales returns 550
Sales revenue 66,100
Wages and Salaries 5,600
147,830 147,830
For more questions to practise on Trial balance. please click here More Practice questions 

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