TRIAL BALANCE

DEFINITION

IT IS A STATEMENT SHOWING CREDIT AND DEBIT

BALANCES FROM THE LEDGER.

HELPS ARITHMETICAL ACCURACY AND FACILITATES

FINAL ACCOUNTS.

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TRIAL BALANCE

BASIC PRINCIPLE :

SINCE IT IS DOUBLE ENTRY BOOK-KEEPING, HENCE,

ASSETS AND EXPENSES ARE DEBIT BALANCES

LIABILITIES AND INCOMES ARE CREDIT BALANCES

. IN CASE OF ARITHMETICAL INACCURACY IDENTIFY

CLERICAL/PRINCIPLE ERRORS AND RECTIFY

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TRIAL BALANCE

TYPES OF ERRORS:

A) CLERICAL ERRORS

-- ERRORS OF OMISSION

--- OMISSION OF TRANSACTION FROM BOOKS

--- COMPLETE OMISSION NOT AFFECTING TRIAL BALANCE

--- PARTIAL OMISSION AFFECTING TRIAL BALANCE

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TRIAL BALANCE

-- ERRORS OF COMMISSION

--- FIGURE POSTED ON THE WRONG SIDE OR WITH WRONG AMOUNT -- COMPENSATING ERRORS

--- ONE ERROR BALANCES ANOTHER ERROR . B) ERRORS OF PRINCIPLE

-- ERRORS IN CONTRAVENTION OF ACCOUNTING PRINCIPLES

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TRIAL BALANCE

RECTIFICATION OF ERRORS IS A SERIES OF STEPS:

PASS THE CORRECT ENTRY

COMPARE THE WRONG ENTRY WITH THE CORRECT ONE

PASS THE RECTIFICATION ENTRY

IF TRIAL BALANCE DOES NOT TALLY THEN DIFFERENCE IS TRANSFERRED TO SUSPENCE ACCOUNT

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TRIAL BALANCE

TYPICAL TRIAL BALANCE N A M E DEBIT CREDIT CAPITAL X DRAWINGS X PURCHASES X SALES X EXPENSES X DEBTORS(CUSTOMRES) X CREDITORS(SUPPLIERS) X CASH X SALES RETURN X

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TRIAL BALANCE

TYPICAL ERRORS: -- CLERICAL: A) SALARY PAID 1000/- BUT POSTED AS 10, 000/-. RECTIFICATION: CREDIT SALARY WITH 9000/-.

B) SALARY PAID 1000/- BUT POSTED IN RENT A/C. RECTIFICATION: DEBIT SALARY AND CREDIT RENT WITH 1000/-.

C) GOODS WORTH 100/- SOLD TO VIJAY WRONGLY RECORDED IN PURCHASE REGISTER. RECTIFICATION: CREDIT SALES AND PURCHASE A/Cs WITH 100/- EACH AND DEBIT VIJAY WITH 200/-.

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TRIAL BALANCE

AFTER TRIAL BALANCE IS PREPARED ONE FINDS

. D) SALES OF 500/- POSTED AS 5000/- WHILE RENT PAID 500/- POSTED AS 5000/-.

. RECTIFICATION: DEBIT SALES WITH 4500/-, CREDIT SUSPENCE WITH 4500/-, CREDIT RENT WITH 4500/-,

DEBIT SUSPENCE WITH 4500/-. E) SALARY PAID AS 1000/- BUT POSTED AS 10,000/- IN RENT

A/C. RECTIFICATION: DEBIT SALARY WITH 1000/- SUSPENCE WITH

9000/-; CREDIT RENT WITH 10000/-

F) A PURCHASER’S DEBIT BALANCE OF 9000/- HAS NOT BEEN TAKEN.

RECTIFICATION: DEBIT DEBTORS, CREDIT SUSPENCE TO THE EXTENT OF 9000/-.

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CAPITAL AND REVENUE EXPENDITURE

BASIC PRINCIPLE:

. ALL EXPENSES AND RECEIPTS OF REVENUE NATURE

ARE TAKEN TO TRADING AND PROFIT & LOSS

ACCOUNT

. ALL EXPENDITURES AND RECEIPTS OF CAPITAL

NATURE ARE TAKEN TO BALANCE SHEET

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CAPITAL AND REVENUE EXPENDITURE

REVENUE RECEIPTS/PAYMENTS :

. ARE SMALLER IN SIZE(RELATIVELY)

. ARE RECURRING IN NATURE

. THE BENEFITS ARE OVER A SHORTER PERIOD (1 YEAR)

. THE PURPOSE IS TO RUN THE BUSINESS ON A DAY TO DAY BASIS

. MAINTAIN ASSETS IN WORKING CONDITION

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CAPITAL & REVENUE EXPENDITURE

CAPITAL RECEIPTS/PAYMENTS:

ARE USUALLY LARGE(RELATIVELY)

ARE NON-RECURRING IN NATURE

THE BENEFITS ARE OVER LONGER DURATION

THE PURPOSE IS TO ENHANCE PRODUCTIVITY OF THE ASSETS

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CAPITAL AND REVENUE EXPENDITURE

THERE ARE CERTAIN EXPENDITURES WHICH ARE OTHERWISE REVENUE IN NATURE BUT SOMETIMES

UNUSUALLY LARGE AND WHOSE BENEFIT TO THE

ORGANISATION MAY ACCRUE AFTER FEW YEARS.THESE

MAY BE TREATED AS DEFERRED REVENUE EXPENDITURE ,

CARRIED TO THE BALANCE SHEET , AND WRITTEN OFF TO

THE PROFIT & LOSS ACCOUNT OVER A PERIOD OF TIME.

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CAPITAL AND REVENUE EXPENDITURE

SAME IS THE CASE WITH CERTAIN RECEIPTS SUCH AS SALE OF ASSETS, WHERE THE RECEIPTS UPTO BOOK

VALUE IS DEDUCTED FROM THE ASSET, AND , IF

BETWEEN BOOK VALUE & COST AS REVENUE

RECEIPT & ABOVE COST AS CAPITAL RECEIPT.

. THERE IS A THIN LINE BETWEEN CAPITAL & REVENUE CLASSIFICATION. FOR INSTANCE REPAIRS TO MACHINERY WHICH KEEPS THE ASSET IN WORKING CONDITION IS CHARGED TO THE P & L A/C WHILE BETTERMENT EXPENSE IS CAPITALISED.

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CAPITAL & REVENUE EXPENDITURE

EXAMPLES OF EACH TYPE OF CLASSIFICATION: CAPITAL NATURE:

-- PURCHASE OF ASSETS SUCH AS BUILDING, MACHINERY, VEHICLES. -- EXPENDITURE IN PURCHASE /SETTING UP OF CAPITAL GOODS/ASSETS -- EXCESS OF SALE PRICE OF ASSET OVER ITS COST PRICE -- FUNDS RAISED THRU BANKS/INSTITUTIONS -- FUNDS RAISED THRU ISSUE OF SHARES, & DEBENTURES

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CAPITAL AND REVENUE EXPENDITURE

REVENUE NATURE:

ALL TRANSACTIONS RELATING TO NOMINAL ACCOUNTS

EVEN CERTAIN EXPENSES OF NON-RECURRING NATURE BASED ON MATERIALITY CONCEPT

EXCESS OF SALE VALUE OF ASSET OVER W D VALUE UPTO COST OF ASSET

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CAPITAL AND REVENUE EXPENDITURE

DEFERRED REVENUE EXPENDITURE:

LARGE ADVERTISING EXPENDITURE FOR(SAY) LAUNCH OF A PRODUCT

EXPENDITURE FOR RAISING OF FUNDS INCLUDING PREPARATION OF PROJECT REPORT

INITIAL EXPENSES FOR SETTING UP OF A COMPANY

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