Chapter-3: Trial Balance

1. Define trial balance.

§ It is the list of the balances of the accounts in the ledger on a certain date.

2. The purpose of trial balance.

§ It let us know whether there is any mathematical error in the double-entry booking.
§ Required to make the financial statements.

3. Which accounts are credit balance and debit balance?

Debit Balance Credit Balance

Assets Liabilities
Expenses Incomes
Drawings Capital
Purchases Sales
Sales returns Purchases returns

Note: (VVI)
§ List of assets: Premises, building, land, machinery equipment, motor vehicle, van, laptop, computer,
cash, bank, trade receivable or account receivable, inventory

§ List of expenses: Rent, wages, salaries, insurance, Advertising, repair, maintenance, electricity,
commission, discount allowed

§ List of income: Commission received, rent received, discount received,

§ List of liability: Loan, creditors, account payable/trade payable, Bank overdraft.

4. What does the trial balance show when it balances?

§ It shows that the double entry bookkeeping accounts balances are mathematically correct.

5. What are the errors if trial balance does not become equal?

§ Error in addition in trial balance

§ Error in addition in ledger accounts
§ Making a single entry instead of entering the data twice
§ Entering a transaction twice on the same side of a ledger.

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6. State the errors for which the trial balance will balance till the trial balance is wrong.

§ Errors of Principle: This is an error which occurs when the transaction is entered using correct
amount and correct side but in the wrong account. For example, purchase of furniture is debited to
Purchase Account, instead of Furniture Account.

§ Errors of Omission: When a transaction goes completely unrecorded or a transaction after being
recorded in the books of primary entry is not at all posted in the ledger, the error is an error of
omission.

§ Error of commission: Posting an item to wrong account, but on the correct side. For instance, if a
purchase of Rs 200 from Ram has been credited to Raman, instead of Ram.
§ Error of Original entry: This happens when the transaction entered is not correct in the first time.
§ Compensating Errors: These happens when two or more errors cancel out each other.
§ Error of complete reversal: This happens when correct amount is entered in the correct account but
the entry has been made on the wrong side.

7. The layout of trial balance.

§ First the name of the account from where the transaction came is entered.
§ If the account is debit, then the amount is written in debit side or else in the credit side.
# total amount of debit will be equal to the total amount of credit.

Solution - 4

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8. What are the purposes of preparing a trial balance?

§ A trial balance is useful in preparing financial statements.

§ The trial balance can help in locating arithmetical errors. However, the balancing of the trial balance is not
proof that the entries in the ledger accounts are completely free from errors.

Q-1: Trial balance for the year ended 31 December 2019.

Debit/$ Credit/$
Cash 300
Bank Overdraft 3000
Capital 42500
Drawings 750
Land and buildings 30000
Office equipment 1050
Loan 2200
Inventory 7500
Purchases 9850
Sales 10650
Sales return 940
Purchases returns 1030
Carriage inwards 400
Wages 1500
Rent received 830
Sundry expenses 1290
Trade receivable 1230
Trade payable 5670

63670 68090
Answer of Q-1:

Debit/$ Credit/$
Cash 300
Bank Overdraft 3000
Capital 42500
Drawings 750
Land and buildings 30000
Office equipment 1050

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Loan 2200
Inventory 7500
Purchases 9850
Sales 10650
Sales return 940
Purchases returns 1030
Carriage inwards 400
Wages 1500
Rent received 830
Sundry expenses 1290
Trade receivable 12300
Trade payable 5670

65880 65880
Q-2:

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Solution of Q-2:

Q-3:

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Solution of Q-3:

Double entry book-keeping part-2 / (Chap-4)

1 Define the term sales, purchase and Nominal (general) ledger.

§ Sales ledger: The ledger in which the account of credit customers is stored.

§ Purchase ledger: It is the ledger where the account of credit suppliers is stored.

§ Nominal ledger: It is the ledger all the other accounts are stored.

2 Define cash book.

§ For transaction by cash or bank they are entered in different accounts, these transactions by cash and
bank are brought together to make up the cash book.
§ It has two sides like double entry book-keeping but has different columns to input money.
§ There is cash and bank column to write the amount if transaction.

3 What is Contra entry?

§ A contra entry is one which appears on both side of the cash cook.

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4 What do you mean by bank overdraft?

§ It is when the business needs to pay more to the bank than what it has in its account.

5 What is the meaning of ‘dishonored cheque’?

§ A check which the debtors bank refuses to pay.

6 Why is cash discount allowed?

§ It is given to special customers who settle the account within a given time limit.

7 Explain discount allowed and received.

§ Discount allowed: It is when the business gives discount to its credit customer who gives payment
within set time limits.

§ Discount received: It is when the business receives discount from its credit suppliers as the business
gives commitment to give the payment within a set time.

Business Documents / Sources of documents. / (Chap-5)

1. List the names of all business documents.

§ Invoice
§ Debit Note
§ Credit Note
§ Statement of account
§ Receipt
§ Cheque

2. Define the term invoice and trade discount.

§ It is a document that the supplier gives for the goods sild on credit, where the details, quantities and
price of goods are mentioned.

§ It is the price reduced by the supplier or the customer depending on the amount of goods purchased.

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3. State the information’s that are shown in the invoice.

§ Name and address of the customer

§ Name and address of the supplier
§ The date
§ Details, price, quantities of the goods

4. What is debit note and what information’s are required for a debit note?

§ Debit note: It is a note issued by the buyer of the goods for a reduction in the invoice received if
there is shortage of good or faults or overcharges.

§ Required information debit note:

Name and address of the customer
Name and address of the supplier
The date
The quantity of goods returned or overcharges and details of the goods.

5. Define credit note and why it is required.

§ Credit note: Credit note is issued by the supplier to the buyer on the goods sold on credit, it is given
when they are returned for reported faulty. Credit notes let the supplier give an evidence so that
invoice values can be changed.

§ Required information debit note:

# It is required as it lets the supplier make changes in the invoice by giving the note. This is an evidence.
# The buyer uses it as evidence of purchase returns.
# The seller uses it as the sales return copy.

6. Define statement of account and the list the information’s required for statement of account

§ Statement of account: It is a document which is a list of summarized transaction for the month, it is
issued by the seller of the goods.

§ Required information for the statement of account:

o It is a remainder of the transaction of the supplier and the customer.
o Let each other know whether they are on credit or debit or payment is still left.

7. What is a cheque and receipt?

§ Cheque: It is a written document which tells the bank to give a specific amount of money to the
stated business or person by the account owner.

§ Receipt: It is a proof that tells the payment is given by the buyer to the supplier.

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 Books of Prime Entry / (Chap-6)

1. State the books of prime entry.

§ Cash Book
§ Petty Cash Book
§ Sales Journal
§ Purchase journal
§ Sales return journal
§ Purchase return journal
§ General Journal

2. What are sales and sales return journal?

§ Sales Journal: This contains the business names and the details of sales sold on credit to them.
§ Sales return journal: It shows the products, its details and the business who have returned products
sold on credit.

3. How a sales and sales return journal is written?

§ First the date is written

§ The name or details of the company written
§ The credit notice number for Sales return or the invoice number for sales is written.
§ Next the amount of sales return or sales is mentioned.
§ At the end of every month the total is transferred to the sales and sales return account.

4. Define purchase and purchase return journal.

§ Purchase journal: It is where it is stored what goods are bought and from where on credit.
§ Purchase return journal: It has all the details and the amount of money of those goods that have be
returned to the supplies, those were bought on credit.

5. How can you write purchase and purchase return journal?

§ First the date is written

§ The name or details of the company written
§ The credit notice number for purchase return or the invoice number for purchase is written.
§ Next the amount of sales return or sales is mentioned.
§ At the end of every month the total is transferred to the purchase and purchase return account.

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