Preparation of Trial Balance

(e ird Step)

Trial Balance

• A listing of all the ledger accounts with open balances as of a particular date that proves the
equality of debits and credits.

• Two columns are provided so that the total of all accounts with debit balances tally with the
total of all accounts with credit balances.

• Ledger accounts are not aggregated but listed individually and follow the following order:
assets, liabilities, capital, revenues, and expenses.

• Assets are arranged according to liquidity while liabilities are arranged according to maturity.

• Contra-accounts immediately follow their respective principal accounts.

• Pesos signs are placed before the first amount of the debit and credit column, as well as before
the debit and credit column totals.

• A balanced trial balance does not guarantee that there are no errors in the recording and
posting processes.

Kinds of Trial Balance

1. Trial Balance of Totals - the total debits and credits of each ledger account are presented

2. Trial Balance of Balances - only the balance (whether debit or credit) of each ledger account is
presented.

Terms and Definitions

• Closed Account - an account with zero balance

• Footing - adding a column of figures

• Cross-Footing - adding a line of figures

• Cross-Referencing - the process of writing the page number of the journal under the folio
column of the ledger account and the ledger account code under the folio column of the
journal

Errors in Trial Balance

If the totals of the debit and credit columns of a trial balance are not equal, existence of error(s) is
possible. Errors that cause the imbalance are:

1. Posting a debit or credit amount twice

2. Posting to the wrong side of the account (this has a double effect)

3. Non-posting of either the debit or credit amount

4. Wrong footing of the ledger

5. Wrong transfer of account from the ledger to the trial balance

Ways of Locating Errors in the Trial Balance

1. Re-add the debit and credit columns of the Trial Balance to confirm the total debits and credits.

2. Get the difference between the two totals.

a. If the difference is a digit of 1 (one), i.e., P10, P100, P1,000, etc., the error may be in the
additional or subtraction. Check the footing of the debit and credit. If the error is not
located, the posting in the ledger should be verified.

b. If the difference is an even number, divided the number by 2. e quotient arrived at

may be omitted in the Trial Balance or an account balance may be erroneously copied/
extended to the wrong column of the trial balance.

c. If the difference is a multiple of 9, the error may be due to transposition; that is, the
order of the figure is interchanged, such as 57 is written as 75, or 119 as 191.

d. If the difference is divisible by 9 (nine), this indicates a slide error or transplacement. For
example, P100 is written as P10 or P2,500 as P250 or P10.50 as P105.00

How to Correct Errors

• Use correcting journal entries; or

• Draw a single straight line through the wrong item or amount and write the correct amount
directly above the cancelled amount or item.