How To Extract A Trial Balance
Peter Marshall Bsc (Econ) BA MBIM is a Fellow of the Society of Business Teachers, and an experienced educator in business subjects. He is also a prolific author and his books have been translated and sold worldwide. He lives in London, UK.
What you need
- the ledger (including of course the cash book and petty cash book, which are both part of the ledger)
- a sheet of A4 paper.
Make sure that all the folio columns have been entered in all the ledger accounts. Enter them now if necessary.
Extracting a trial balance step by step
- 1.Head your blank sheet ‘trial balance as at [date]’. Rule two cash columns down the right hand side. Head them, ‘debit’ and ‘credit’.
- 2.List the balances of every single ledger account, including the cash book and petty cash book. Put each one in the correct column of your trial balance (debit, or credit).
- 3.Total up the two columns. If they balance, the job is done! If not, proceed as follows.
- 4.Look for an error of complete omission of an account balance in the trial balance, or of one side of a posting in the ledger. You should spot this if you look for a figure equal to the error.
- 5.If this fails, look for an error due to something being entered on the wrong side of the trial balance, or to both sides of a transaction being posted to the same side in the ledger. Divide the discrepancy in your trial balance by two, and look for a figure which matches this.
- 6.If this fails, look for an error of transposition. Is the discrepancy divisible by nine? If so, there could well be such an error. If these methods all fail, the error could be in the totalling up, or in under- or overstating one side of a transaction, or a mixture of errors.
- 7.Check through the ledger again to look for any folio column omissions.
- 8.Check off each ledger balance against the trial balance. Have you recorded it on the correct side? Tick each in pencil as you go. If this does not solve the problem, proceed to step 9.
- 9.Re-check the addition of all your ledger columns, and balance each account. If this still doesn’t solve the problem proceed to step 10.
- 10.Check that the values in the posting of both sides of each transaction are equal. Start at the first page of the ledger and work through to the end. Tick each in pencil as you go.
If you have carried out all the steps accurately, the trial balance will now balance. Note: a small error need not hold up the preparation of final accounts; you can post the error to a ‘suspense account’ to save time. When eventually the error is tracked down a ‘statement of amended profit or loss’ can be drawn up.
The four column trial balance
A variation of the trial balance described above is the four column version. This is simply one with two debit columns and two credit columns. In fact the page is most usefully split down the middle so that each side can have its own debit and credit columns. On one side you enter all the balances relating to the revenue accounts. On the other side you enter those which relate to the balance sheet. On
each side you total up the debit and credit columns separately to give either a debit or credit balance. If things are right the debit balance on one side will equal the credit balance on the other.
Sometimes these two types of trial balance are combined, side by side, with a balance of adjustments to make what is called an extended trial balance.
We could, if we wished, also show profit (or loss) on this too, since we debit profit and loss account, to close it, and credit capital account, to transfer the balance, at the end of the year.