How to prepare the Trial Balance

Trial Balance

What you need

• All ledger accounts have been balanced and the closing balance (balance b/d) of each account is known.
• A complete list of accounts with their respective balance amounts as at a given date.
• An understanding of the nature of balances: assets and expenses carry debit balances; liabilities, capital and revenue carry credit balances.
• Ruled paper or a template with columns for Particulars, Debit (RM) and Credit (RM).

Step by step

1. 1

   Understand the purpose and set the date

   The Trial Balance is a list of all account balances on a specific date, not an entry inside the ledger. For this example we prepare the Trial Balance of Perniagaan Setia as at 31 December 2023. Write the three-line heading: the business name, 'Trial Balance', and 'as at 31 December 2023'. The date matters because a trial balance shows the position of balances at a single point in time.

2. 2

   Collect all balances from the ledger

   Copy the closing balance of every account from the ledger and Cash Book. For Perniagaan Setia the balances obtained are: Cash RM3,000; Bank RM8,000; Accounts Receivable (debtor) RM2,500; Fittings RM6,000; Purchases RM12,000; Rent RM1,800; Capital RM20,000; Accounts Payable (creditor) RM3,300; and Sales RM10,000. Make sure no account is left out.

3. 3

   Determine the nature of each balance

   Decide whether each balance falls on the debit or credit side. Assets (Cash, Bank, Accounts Receivable, Fittings) and expenses (Purchases, Rent) carry DEBIT balances. Capital, liabilities (Accounts Payable) and revenue (Sales) carry CREDIT balances. Example: Purchases is an expense, so RM12,000 goes in the debit column; Sales is revenue, so RM10,000 goes in the credit column.

4. 4

   Build the three-column format

   Below the heading, rule a table with three columns: Particulars (account name), Debit (RM) and Credit (RM). Arrange the items neatly, usually assets, liabilities, capital, revenue then expenses, or in ledger order. Leave space at the bottom for the Total row.

5. 5

   Transfer the debit balances to the Debit column

   Move each debit balance into the Debit column only: Cash RM3,000; Bank RM8,000; Accounts Receivable RM2,500; Fittings RM6,000; Purchases RM12,000; Rent RM1,800. Write the figures neatly and aligned. Never place the same amount in both columns; each balance goes in one column only.

6. 6

   Transfer the credit balances to the Credit column

   Move each credit balance into the Credit column only: Capital RM20,000; Accounts Payable RM3,300; Sales RM10,000. Recheck that the account name matches the transferred amount so that no balance is placed in the wrong column (a common slip is putting Sales on the debit side).

7. 7

   Total both columns and check they balance

   Add the Debit column: RM3,000 + RM8,000 + RM2,500 + RM6,000 + RM12,000 + RM1,800 = RM33,300. Add the Credit column: RM20,000 + RM3,300 + RM10,000 = RM33,300. Because the Debit total of RM33,300 equals the Credit total of RM33,300, the trial balance balances. Write the totals on the Total row and rule a double line beneath them.

8. 8

   Trace errors if it does not balance

   If the debit total does not equal the credit total, find the difference. Check: have all balances been transferred? Is any balance in the wrong column? Is the addition correct? Divide the difference by 2 to spot a balance placed in the wrong column, or look for a transposed figure (for example RM1,800 written as RM8,100). Correct it and re-total until it balances.

Second example

Now consider Kedai Harmoni as at 30 June 2023, which has a Drawings account (owner's withdrawals) of RM1,500. Drawings reduce capital but carry a DEBIT balance in the trial balance, so they go in the Debit column, not the Credit column. Suppose the other balances are Bank RM9,000 (debit), Purchases RM7,500 (debit), Drawings RM1,500 (debit), Capital RM12,000 (credit) and Sales RM6,000 (credit). Debit total = RM9,000 + RM7,500 + RM1,500 = RM18,000; Credit total = RM12,000 + RM6,000 = RM18,000. Both columns balance at RM18,000.

Now suppose the preparer wrongly placed Drawings RM1,500 in the Credit column. The Debit total becomes RM16,500 while the Credit total becomes RM19,500, a difference of RM3,000. Because RM3,000 is twice RM1,500, this is a strong signal that a balance of RM1,500 is in the wrong column. After Drawings is moved back to the Debit column, the trial balance balances again at RM18,000.

Common mistakes

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