Trial balance and steps for making trial balance

Trial balance and steps for making trial balance

Definition of Trial balance

Trial balance is the statement which shows the list of balance of all ledger accounts .It is made for checking mathematical error , making of final accounts and maintaining budget of company. Because of it is made on basis of company’s all ledger accounts , so we satisfy about mathematical correctness , if debit balance of this statement is equal to credit balance of this statement .
Steps for making trial balance
1st Step : Making all ledger accounts and the calculate their balance , if any account’s debit side is more than credit balance , its balance will be called debit balance , if the credit balance is more than debit side balance , it is called credit balance .
2nd Step : Make statement in vertical form in which you have show particular for making the list of account and right
side , you have to debit balance and credit balance .
Proforma of Trial balance
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S. No. ? Particular ? Debit Balance ? Credit balance ?
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3rd Step : Debit balance
 

1. assets account’s balance
2. expenses account balance
3. loss account ‘s balance
4. investment account balance
5. drawing account’s balance
6. Purchase account
7. Sale return Account

4th Step : Credit balance
 

1.  Liabilities account’s balance
2. Provision account’s balance
3. Capital account’s balance
4. Reserve and surplus account’s balance
5. Sale account
6. Purchase return account

5th Step : If trial balance is not matched, the difference will be show as suspense account

Important notes

Closing Stock is not shown in trial balance because , it is adjusting item and we can give dual effect on final account. All other items whose account is not made in proper ledger will not shown in trial balance .

Different types of Expenses
In accounting, there are only revenue nature and capital nature expenses. Revenue nature expenses records in profit and loss account while capital nature expenses are recorded in balance sheet.

Revenue expenses are again subpart of direct expenses and indirect expenses
Direct expenses are the main type of expenses which are related to production and purchase of goods. These expenses are

incurred during the purchase of goods and transfer to trading account. I am giving the examples of

Direct expenses:-

• Wages
• Freight
• Carriage
• Carriage inward
• Octroi
• Royalty on production
• Factory expenses
• Factory depreciation
• Fuel , oil and power
• All other expenses related to purchase of goods
   

Indirect Expenses

• Office expenses
• Sales expenses
• Advertising
• Administrative expenses
• Bad debts
• Depreciation of office assets
• Interest on loan
• All other expenses relating to sale and marketing
   

Simple income statement
Sales (Net ) XXXX
Less cost of goods sold XXXX
( or merchandising cost) XXXX
______________________________
Gross profit XXXX
Less operating expenses XXXX
1.office and administrative expenses
2.selling and distribution expenses
3.Financial expenses
______________________________
Net Income XXXX
______________________________
Net sales refer to total sales less sales returns and are calculated as follows
Cash sales XXXX
credit sales XXXX
_________________________
total sales XXXX
less sales return XXXX
___________________________
Net sales
___________________________
Cost of goods sold means the cost price or cost of manufacture of the goods or commodities actually sold and is
calculated as follows.
Opening stock XXXX
add purchase less purchase returns XXXX
add direct expenses XXXX
less closing stock XXXX
__________________________
cost of goods sold XXXX
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