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
______________________________________________
S. No. ? Particular ? Debit Balance ? Credit balance ?
_______________________________________________
3rd Step : Debit balance
- assets
account’s balance
- expenses
account balance
- loss
account ‘s balance
- investment
account balance
- drawing
account’s balance
- Purchase
account
- Sale
return Account
4th Step : Credit balance
- Liabilities
account’s balance
- Provision
account’s balance
- Capital
account’s balance
- Reserve
and surplus account’s balance
- Sale
account
- 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
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
____________________________
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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