Week 4: Trial Balance
Topic: Trial Balance
Sub-Topic: Meaning of trial balance | Ruling of trial balance | Functions of trial balance | Opening a ledger account | Entries into the ledger account
Objectives:
At the end of the lesson, students should be able to:
- Define a trial balance and explain its purpose in accounting.
- Open a simple ledger account and make entries.
- Prepare a trial balance from given ledger accounts.
Entry Behaviour:
Students should be familiar with the concepts of credit, debit, and simple financial transactions.
Instructional Materials:
- Ledger account template
- Sample business transactions
- Business Studies textbook
Content
Trial Balance
A trial balance is a financial statement that lists all the balances from a company’s ledger accounts to check if the total debits equal the total credits. It is prepared to confirm that accounting records are accurate and all entries follow the double-entry system, where every transaction has a debit and a credit.
Ruling of a Trial Balance
A trial balance is usually presented in a two-column format: one column for debit balances and the other for credit balances. Below is the structure:
| Trial Balance as of [Date] | |
|---|---|
| Account Name | Debit (₦) |
| Cash | 10,000 |
| Capital | |
| Purchases | 5,000 |
| Sales | |
| Equipment | 30,000 |
| Total | 45,000 |
- The debit column records things like assets, expenses, or losses.
- The credit column records liabilities, capital, income, or profits.
- If the total of the debit and credit columns matches, it suggests the ledger accounts are correctly balanced.
Functions of a Trial Balance
- Detecting Errors
It helps identify mistakes such as incorrect entries or posting transactions to the wrong side of the ledger. - Checking Accuracy of Ledger Accounts
If the total debits equal the total credits, it suggests that the double-entry system was followed correctly. - Preparing Financial Statements
The trial balance provides a summary of all account balances, which is used to create final financial reports like the income statement and balance sheet. - Monitoring Financial Position
The trial balance helps in tracking the business’s income, expenses, and overall financial health.
Opening a Ledger Account
A ledger account is a record that summarizes all transactions for a particular item (e.g., cash, sales, or rent). Each ledger account has two sides: the debit side and the credit side. Opening a ledger account involves creating a separate page or section for each account in the ledger book.
Format of a Ledger Account (T-Account)
| Account Name: Cash | |
|---|---|
| Debit Side | Credit Side |
| Date | Description |
| Jan 1 | Capital |
| Jan 3 | Sales |
- Debit Side: Records amounts coming into the account.
- Credit Side: Records amounts leaving the account.
Entries into the Ledger Account
When a business records a transaction, it follows the double-entry system, where every transaction has two entries:
- Debit Entry – Increase in assets or expenses (or decrease in liabilities).
- Credit Entry – Increase in income or liabilities (or decrease in assets).
Example
- Transaction 1: The business receives ₦10,000 as capital.
- Debit: Cash account ₦10,000 (cash is coming in)
- Credit: Capital account ₦10,000 (owner’s equity increases)
- Transaction 2: The business buys goods worth ₦2,000.
- Debit: Purchases account ₦2,000 (expense increases)
- Credit: Cash account ₦2,000 (cash decreases)
These entries are posted in the relevant ledger accounts for proper record-keeping.
Step 1: Introduction
Lesson Presentation (Step-by-Step Procedure)
Others removed.
