Christian Alliance S. C.
Chan Memorial College
F.4 Business, Accounting and Financial Studies (2022 – 2023)
Chapter 6: Trial Balance and Preparation of Financial Statements (Part 1)
Name: _____________________ Class: _______ ( ____ )
Expected Outcomes:
(i) Explain the functions and limitations of a trial balance.
(ii) Balance off the accounts and prepare a trial balance.
Recap: Accounting Cycle
Books of original entry Ledgers Trial balance Period-end adjustments Financial statements
1. Balancing off Accounts
A procedure to make debit side and credit side equal
The remaining amount will be carried forward to the next accounting period
It is usually done at the end of each month or each year
Types of Balances:
Debit balance: Dr. > Cr.
Credit balance: Dr. < Cr.
Zero balance: Dr. = Cr.
Normal Balances of Different Types of Accounts:
Assets + Expenses + Drawings = Capital + Revenues + Liabilities
( Dr. ) ( Dr. ) ( Dr. ) ( Cr. ) ( Cr. ) ( Cr. )
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Example 1
Cash
2022 $ 2022 $
Sep 1 Capital 10,000 Sep 15 Drawings 3,000
Loan from Mary 500 Sep 21 Machinery 2,500
10,500 10,500
Step 1: Add up the total amount on each side
Debit side: $ 10,500
Credit side: $ 5,500
Step 2: Find the difference between each side, i.e. the balance of the account
A debit balance of $ 5,000
Step 3: Enter the balance to the lesser side on the last day of the current period
The balance is called balance carried down
Step 4: Show the same totals on both sides
Step 5: Enter the balance again on the first day of the next period
The balance is called balance brought down
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2. Trial Balance
All Debit Balances All Credit Balances
Total debit balances should be equal to total credit balances
Trial balance is a list of all debit and credit balances of the accounts at the end of an accounting period
It is not a ledger account, so it is not a part of double-entry system
Format of Trial Balance
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Example 2
Capital
2022 $ 2022 $
Sep 30 Bal. c/d 10,000 Sep 1 Cash 10,000
Oct 1 Bal. b/d 10,000
Cash
2022 $ 2022 $
Sep 1 Capital 10,000 Sep 15 Machinery 3,000
Sep 30 Bal. c/d 7,000
10,000 10,000
Oct 1 Bal. b/d 7,000
Machinery
2022 $ 2022 $
Sep 15 Cash 3,000 Sep 30 Bal. c/d 3,000
Oct 1 Bal. b/d 3,000
Mr. Suen
Trial Balance as at 30 September 2022
Dr. Cr.
$ $
Capital 10,000
Cash 7,000
Machinery 3,000
10,000 10,000
In this case, the trial balance agrees .
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3. Functions of Trial Balance
To detect errors by checking the totals of debit and credit balances
To facilitate the preparation of financial statements
4. Limitation of Trial Balance
Cannot detect all errors since some errors may not affect the balances
Example 3
Cash
2022 $ 2022 $
Sep 15 Sales 500
Sales
2022 $ 2022 $
Sep 15 Cash 50
On 15 September 2022, cash sales of $500 is made
However, the amount entered in sales account is incorrect
The difference between total debit and credit balances will be $500 – $50 = $450
Example 4
Cash
2022 $ 2022 $
Sep 15 Sales 50
Sales
2022 $ 2022 $
Sep 15 Cash 50
On 15 September 2022, cash sales of $500 is made
However, the amounts entered in both cash and sales account are incorrect
The difference between total debit and credit balances will be $50 – $50 = $0 Equal
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Classwork 1: Preparing a trial balance (Textbook Q.31)
Classwork 2: Correcting a trial balance (Textbook Q.33)
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Classwork 3: Preparing a trial balance after recording double entries (Textbook Q.37)
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HKDSE Past Paper Questions
(2012 Section A – Q.3)
(2014 Section A – Q.10)
(2015 Section A – Q.7)
(2016 Section A – Q.11)
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(2017 Section A – Q.2)
(2017 Section A – Q.9)
(2018 Section A – Q.2)
(2019 Section A – Q.4)
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(2021 Section A Q.9)
(2021 Section A Q.13)
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(2017 Section B Q.4)
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(2020 HKDSE Section B – Q.4)
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