What is a trial balance?
A trial balance is a list of all the balances in the nominal ledger accounts. It serves as a check to ensure that for every transaction, a debit recorded in one ledger account has been matched with a credit in another. If the double entry has been carried out, the total of the debit balances should always equal the total of the credit balances. Furthermore, a trial balance forms the basis for the preparation of the main financial statements, the balance sheet and the profit and loss account.
How do we prepare a trial balance?
In order to prepare a trial balance, we first need to complete or ‘balance off ’ the ledger accounts. Then we produce the trial balance by listing each closing balance from the ledger accounts as either a debit or a credit balance. Below are the T-accounts in Edgar Edwards’ nominal ledger. We need to work out the balance on each of these accounts in order to compile the trial balance.
What is the procedure for balancing off accounts?
Accounts are straightforward to balance off if they consist of only one type of entry, i.e. only debit entries or only credit entries. In this case, all the account entries are simply added up to get the balance on the account. If, for instance, a bank account has three debit entries of £50 each, then the balance on the account is a debit balance of £150. However, when accounts consist of both debit and credit entries, the following procedure should be used to balance off these accounts:
- Add up the amounts on each side of the account to find the totals.
- Enter the larger figure as the total for both the debit and credit sides.
- For the side that does not add up to this total, calculate the figure that makes it add up by deducting the smaller from the larger amount. Enter this figure so that the total adds up, and call it the balance carried down. This is usually abbreviated as Balance c/d.
- Enter the balance brought down (abbreviated as Balance b/d) on the opposite side below the total figure. (The balance brought down is usually dated one day later than the balance carried down as one period has closed and another one has started.)
Using the rules above we can now balance off all of Edgar Edwards’ nominal ledger accounts starting with the bank account.
We balance off the capital account in the same way as we did the bank account.
The furniture account has a single entry on one side. This amount is the total as well as the balance in the account.
The account for the creditor, Pearl Ltd, has a debit and a credit entry so we will use the method we used for the bank and the capital accounts.
The computer and bank loan accounts have single entries on one side, like the furniture account, so they need to be treated in the same way.
Making a list of the above balances brought down produces a trial balance as follows.
Table 12 Edgar Edwards Trial Balance as at 6 July 20X2 | dr | cr |
|---|
| £ | £ |
| Bank | 9,150 | |
| Capital | | 4,950 |
| Furniture | 400 | |
| Pearl Ltd (a creditor) | | 200 |
| Computer | 600 | |
| Bank loan | | 5,000 |
| | |
| Total | Total 10,150 | Total 10,150 |
Information point
From the trial balance we can see that the total of debit balances equals the total of credit balances. This demonstrates for every transaction we have followed the basic principle of double-entry bookkeeping – ‘ for every debit there is a credit ’.
FAQs
In the simplest of terms, Bookkeeping is PART of the Accounting process and involves recording and classifying a business's financial transactions in a usable form. Bookkeeping forms the foundation on which the accounting system is built and therefore all bookkeeping information should be complete, accurate and timely.
What is bookkeeping question answer? ›
Bookkeeping is the process of recording your company's financial transactions into organized accounts on a daily basis. It can also refer to the different recording techniques businesses can use. Bookkeeping is an essential part of your accounting process for a few reasons.
Is introduction to accounting hard? ›
How Hard is Basic Accounting? Accounting is a complex field with a lot of intricacies, but the foundational concepts should be fairly easy to pick up for most students. Again, it takes a good eye for detail to become an accountant and even your Introduction to Accounting class shouldn't be a walk in the park.
Is accounting and bookkeeping hard? ›
Is studying bookkeeping hard? While accounting does require a complex set of skills and abilities, as well as excellent attention to detail, it really isn't any more difficult than many of the other popular fields of study that lead to excellent lifelong career opportunities.
Is being a bookkeeper hard? ›
Bookkeeping is not hard as long as you have the skills and resources needed to maintain accurate and up-to-date books. Take online courses and training programs and read books about bookkeeping to continually hone your skills and increase your chances of success.
What should I do first in bookkeeping? ›
Basic Tips on Getting Bookkeeping Right
- Create a New Business Account.
- Set Budget Aside for Tax Purposes.
- Always Keep Your Records Organised.
- Track Your Expenses.
- Maintain Daily Records.
- Leave an Audit Trail.
- Stay on Top of Your Accounts Receivable.
- Keep Tax Deadlines in Mind.
What are the Golden Rules of Accounting? 1) Debit what comes in - credit what goes out. 2) Credit the giver and Debit the Receiver. 3) Credit all income and debit all expenses.
What is bookkeeping vs. accounting? ›
Bookkeeping focuses on recording and organizing financial data, including tasks such as invoicing, billing, payroll and reconciling transactions. Accounting is the interpretation and presentation of that financial data, including aspects such as tax returns, auditing and analyzing performance.
What are the basic concepts of bookkeeping and accounting? ›
While bookkeeping is all about recording of financial transactions, accounting deals with the interpretation, analysis, classification, reporting and summarization of the financial data of a business.
What is the hardest subject in accounting? ›
Tax Accounting: Usually some of the most difficult classes for an accounting major as they delve into the minutia of tax codes, though this knowledge is a major source of income for accounting graduates.
Expertise in mathematics is not required to succeed as a bookkeeper or an accountant. What is needed, however, is the confidence and ability to be able to add, subtract, multiply, divide as well as use decimals, fractions and percentages.
What is the hardest business major? ›
What is the Hardest Business Major? The difficulty of a business major depends on a number of factors including natural talents, chosen courses, and school. However, one of the hardest business majors is thought to be Accounting.
What is the hardest part of bookkeeping? ›
The Internal Impasse: Juggling Priorities and Deadlines
They might be responsible for accounts payable and receivable, payroll processing, bank reconciliations, and generating financial reports — all on top of handling client inquiries and staying updated on regulations. Time management becomes a critical skill.
How fast can I learn bookkeeping? ›
How long does it take to learn bookkeeping? It takes about 6 months of training and experience to learn how to do bookkeeping effectively. However, you can build up some basic knowledge to get started in as little as 5 hours with some of the many online courses available.
What pays more, accounting or bookkeeping? ›
Accountants have higher salary and growth expectations than bookkeepers. To maximize earning potential and secure long-term job stability, it's worth pursuing a career as an accountant.
What is bookkeeping and accounting concept? ›
Bookkeeping deals with identifying and recording financial transactions only. Accounting refers to the process of summarising, interpreting and communicating the financial data of an organisation. Decision making. Data provided by bookkeeping is not sufficient for decision making.
What is the basic of bookkeeping and accounting? ›
In simple terms, bookkeepers record and organise all financial data. However, this can often be done monthly, quarterly or even annually. Accountant: Accountants are mainly responsible for generally overseeing accounts and producing financial statements and tax returns that comply with the law.
What is the main objective of bookkeeping and accounting? ›
The main objective of book-keeping is to keep a complete and accurate record of all the financial transactions in a systematic orderly, logical manner. This ensures that the financial effects of these transactions are reflected in the books of accounts.
What is the basic introduction of accounting? ›
What Is Accounting? Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities.
