Understanding Trial Balance and Trading Account Preparation
Trial balance is a statement that tests the accuracy of ledger account balances, with debit balances displayed in the debit column and credit balances in the credit column. The preparation involves using ledger and cash books, with specific rules for different accounts such as purchases, sales, opening stock, and more. Additionally, the process of preparing trading accounts involves calculating gross profit or loss by considering various factors like sales, purchases, direct expenses, and closing stock.
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TRIAL BALANCE TRIAL BALANCE Trial balance is a statement prepared with Debit and credit balances of the ledger account to test the arithmetical accuracy of the books. FORMAT OF A TRIAL BALANCE FORMAT OF A TRIAL BALANCE Trial Balance as on (DATE) Head of Account Head of Account L.F. L.F. Amount Amount Dr. (Rs.) (Rs.) Dr. Amount Cr. Amount Cr. (Rs.) (Rs.) ITEMS RELATED WITH THE PREPARATION OF TRIAL BALANCE ITEMS RELATED WITH THE PREPARATION OF TRIAL BALANCE 1 . A trial balance is prepared with the help of ledger and cash books. 2 . Ledger account showing debit balance are shown on debit column of a trial balance and ledger account showing credit balances are shown on credit column. 3 . Purchase a/c always shows a debit balance which is shown in debit column of a trial balance . Purchase return always shows credit balance , so it is shown in the debit side of trial balance .
4 . Sales a/c always shows a credit balance so it is shown in credit side of a trial balance while sales returns is shown in debit side of a trial balance . 5 . Opening stock a/c always shows a debit balance so it is shown on the debit side of trial balance . 6 . Generally closing stock(inventory ) does not appear in the trial balance , it is usually given as an additional information or adjustment outside the trial balance . 7 . Account of assets , drawings , debtors , expenses and losses shows debit balances , so they are shown on debit side of trial balance. 8 . Accounts of income and gains , liabilities , capital , creditors show credit balances so they are shown on credit side of trial balance . TRADING ACCOUNTS / FINAL ACCOUNTS TRADING ACCOUNTS / FINAL ACCOUNTS Preparation of the trading account is the first stage in the process of preparing the final accounts . Trading account isprepared to calculate gross profit or gross loss during an accounting year . Gross profit or loss is the difference between sales and cost of goods sold . If the amount of sales exceeds the goods sold , gross profit is earned conversely gross loss is incurred . For calculating cost of goods sold , opening stock , purchase , direct expenses on purchasing , manufacturing goods , closing stock are considered .
FORMAT OF TRADING ACCOUNT FORMAT OF TRADING ACCOUNT Trading a/c of Ms. (company owner ) as on (Date) Particulars Particulars Amount Amount in Rs. in Rs. Particulars Particulars Amount Amount in Rs. in Rs. To opening stock By sales Less sales return / return inward To Purchase Less Purchase return / return outward By closing stock To direct expenses By gross loss transferred to profit / loss a/c To wages and salaries To freight , freight inward To carriage , carriage inward To octroiduty To factory power and fuel To factory lightening
To factory rent To factory insurance To duty on purchase royalities To consumable stores To gross profit transferred to Profit and loss a/c From the following balances , prepare trading a/c for year ended 31 March , 2022 From the following balances , prepare trading a/c for year ended 31 March , 2022 Stock on 1 April 2021 10,000 Wages 5,000 Sales 1,55,000 Return outward 8,000 Freight 500 Purchase 1,00,000 Carriage inward 1,000 Return inward 5,000 Octroiduty Closing stock as on 31 March 2021 was valued at 20,000 2,500
Particulars Particulars Amount Amount in Rs. in Rs. Particulars Particulars Amount Amount in Rs. in Rs. To opening stock 10,000 By sales 1,55,000 Less sales return 5,000 1,50,000 To purchase 1,00,000 Less purchase return 8,000 92,000 By closing stock 20,000 To wages 5,000 To freight 500 Gross profit transferred to credit side of profit and loss a/c and gross loss transferred to debit side of loss / profit a/c. Net profit and net loss obtained in profit and loss a/c will be added and subtracted in the capital a/c of balance sheet. To carriage inward 1,000 To octroiduty 2,500 To Gross Profit transferred to P/L a/c 1,70,000 1,70,000
Gross profit transferred to credit side of profit and loss a/c and gross loss transferred to debit side of loss/ profit a/c . Net profit and net loss obtained in profit and loss a/c will be added and subtracted in the capital a/c of balance sheet.