CMA Foundation · Fundamentals of Financial and Cost Accounting

Trial Balance: formula sheet

Full chapter guide

Key formulas

Basic rule of trial balance: Total of debit balances = Total of credit balances; Holds when every transaction has been recorded with equal debit and credit and posted and balanced correctly.
Double entry principle: Total debits = Total credits for every transaction; This is why the trial balance is expected to agree.
Debit balance items: Assets, expenses, losses and drawings have debit balances; Examples: cash, debtors, furniture, purchases, rent paid, drawings.
Credit balance items: Capital, liabilities, incomes and gains have credit balances; Examples: creditors, loans taken, sales, commission received, capital.
Agreement rule: Total of debit column = Total of credit column; Applies to the debit and credit columns of the complete trial balance. In the total-cum-balances method, both pairs must agree: the debit total and credit total columns, and the debit balance and credit balance columns. It holds when every entry has equal debit and credit and no arithmetical or one-sided error exists.
Balance of an account: Balance = Larger side total − Smaller side total; Shown on the side that has the larger total.
Normal debit balances: Assets, expenses, losses, drawings, purchases, sales returns → Debit; Also debtors, cash, bank (if not overdrawn), stock, and closing balances of such accounts.
Normal credit balances: Liabilities, capital, incomes, gains, sales, purchase returns → Credit; Also creditors, bank overdraft, loans taken, and provisions.
Basic rule of the trial balance: Total of debit balances = Total of credit balances; Holds when every entry has equal debit and credit and posting and balancing are correct.
Debit balances: Assets + Expenses + Losses + Drawings + Opening stock + Purchases + Sales returns; Cash, bank (if not overdrawn), debtors, stock, furniture, machinery, rent paid, wages, salaries, carriage inwards, bad debts.
Credit balances: Liabilities + Capital + Incomes + Gains + Sales + Purchases returns + Provisions; Creditors, loans, bank overdraft, commission received, interest received, discount received, reserves.
Missing figure (balancing figure): Unknown item = Total of one column − Known items of the other column; Use when one balance such as capital or cash is not given.
Test for disclosure: Error disclosed if it changes (total debits − total credits); not disclosed if the difference stays zero; Use this test for any error in a question.
Errors NOT disclosed: Complete omission; error of principle; compensating errors; wrong account, but only if the correct side (debit or credit) is used; error of original entry (wrong amount in both debit and credit); duplicate entry on both sides; Trial balance still agrees in all these cases. A wrong account is hidden only when the debit stays a debit and the credit stays a credit.
Errors disclosed: One-sided posting; partial omission; wrong amount posted on one side only; wrong totalling or balancing; balance carried wrongly to trial balance; posting to one account on the wrong side (without a matching change on the other side); Trial balance totals will differ. The difference is put to a suspense account.
Suspense balance: Suspense = difference between debit total and credit total; Debit total less than credit total: debit Suspense. Credit total less than debit total: credit Suspense.
One-sided error rule: One-sided error → rectify through Suspense A/c; The suspense account is debited or credited with the amount that fixes the missing side.
Two-sided error rule: Two-sided error → no suspense account; Reverse the wrong entry and pass the correct one, or pass one adjusting entry between the right accounts.
Rectification principle: Rectifying entry = Correct entry − Wrong entry already passed; Find what should have been done, then what was done. The entry covers the gap.
Closing rule: Suspense closes to nil when the total rectifying entries equal the opening suspense difference on the opposite side; If only some errors are found, Suspense keeps the balance that is still unexplained. It becomes nil only when all one-sided errors are rectified.
Test applied by a trial balance: Total of debit balances = Total of credit balances; This proves arithmetical accuracy of double entry only, not correctness of the books.
Conclusion rule: Agreement ⇒ total debits = total credits (arithmetical accuracy only); Agreement ⇏ books free from error; Agreement shows only that total debits equal total credits. Errors that affect both sides equally or neither side stay hidden.
Errors hidden by agreement: Omission + Commission + Principle + Compensating; Remember these four as the standard list of errors that do not disturb the totals. Original entry errors and complete reversal are additional cases that also leave the totals equal.
Errors shown by disagreement: One-sided posting, wrong totalling, wrong balancing, unequal amounts; Each of these makes debit total differ from credit total.

Quick revision

A trial balance lists ledger balances on a date; agreement shows arithmetical accuracy only.
Debit side: assets, expenses, losses, drawings. Credit side: liabilities, capital, income, gains.
Balance method uses closing balances of accounts; total method uses total debits and total credits of each account.
Closing stock appears in the trial balance only if it is given within the trial balance itself, where it is a debit balance. If it is given as an adjustment outside the trial balance, it is not listed there.
Opening stock, purchases, wages and carriage inwards are debit balances.
Complete omission of a transaction, errors of original entry where the same wrong amount is recorded in both accounts, errors of commission such as posting to the wrong account of the same type, compensating errors, errors of principle and complete reversal of an entry do not disturb agreement.
One-sided posting or omission of one aspect, wrong amount on one side only, wrong totalling or balancing, and posting to the wrong side of a single account disturb agreement.
A difference in the trial balance is placed in a suspense account until the errors are found.
Debit total less than credit total: suspense account is shown on the debit side, and the reverse for the opposite case.
Once errors are found, rectify through the suspense account for those that caused the difference, and without it for others.
Agreement does not prove the books are free from errors or fraud.

Common mistakes

Calling the trial balance an account or a book of original entry. Fix: Remember it is only a statement prepared from ledger balances. Entries are not made in it.
Believing that an agreed trial balance proves the books are completely correct. Fix: Say it shows arithmetical accuracy only. Errors such as omission of a whole transaction or wrong account still leave it agreeing.
Putting a bank overdraft in the debit column. Fix: Bank overdraft is a liability, so it goes in the credit column. Positive bank balance goes to debit.
Placing drawings in the credit column with capital. Fix: Drawings reduce capital and have a debit balance. Put it in the debit column.
Putting drawings on the credit side with capital. Fix: Drawings reduce capital and are a debit balance. Capital is credit.
Treating sales returns as credit and purchases returns as debit. Fix: Returns reverse the parent account. Sales returns are debit. Purchases returns are credit.
Saying all errors of omission are hidden. Fix: Complete omission is hidden. Partial omission, where only one side is missed, is disclosed.
Thinking all errors of commission are disclosed. Fix: Check the sides. Posting to the wrong person's account on the correct side is hidden. A wrong amount on only one side is disclosed.
Using suspense account for every error. Fix: Use it only for one-sided errors. Two-sided errors and compensating errors do not disturb the trial balance.
Debiting suspense when the credit total is smaller. Fix: Put the difference on the side that is short. Short debit side means debit Suspense.

Exam tips

Theory questions often ask what an agreed trial balance proves. Pick arithmetical accuracy, never complete accuracy.
In missing figure questions, add the credit side first, then subtract known debits.
Memorise the side of common items: drawings debit, capital credit, sales credit, purchases debit.
With no negative marking, always attempt every question and eliminate overclaiming options first.
Read the question for the method name. Totals method questions give both side totals, balances method questions give single figures.
Memorise the side of tricky items: drawings, sales returns, bank overdraft, carriage inwards, and provisions.
For a missing figure, add each column and take the difference. Put it on the smaller side.
Do not spend time hunting errors if the question only asks for the total. Compute the column total and match it with an option.