AQA A-Level Accounting (7127)

## Learning Outcomes

- Understand what a **trial balance** is and why it is prepared
- Identify which ledger balances belong in the debit column and which belong in the credit column
- Prepare a trial balance step by step from balanced ledger accounts
- Apply the general classification rules for assets, expenses, drawings, capital, liabilities and income
- Avoid common errors such as entering both c/d and b/d, or placing bank overdraft on the wrong side
- Explain why an agreed trial balance checks arithmetical accuracy but does not prove complete correctness
- Link the trial balance to suspense accounts and the later preparation of financial statements

## AQA A-Level Accounting (7127) Syllabus

For the AQA A-Level Accounting (7127), you are expected to understand trial balance preparation as part of verification of accounting records, with a focus on the following syllabus points:

![Trial balance preparation from ledger balances, showing debit and credit classification, column totals, and agreement as a test of arithmetical accuracy.](https://static.pastpaperhero.com/images/aqa-a-level-accounting-7127-verification-of-accounting-records-trial-balance-preparation_00.png)

_Trial balance entries are extracted once from balanced ledger accounts and listed in debit and credit columns for arithmetic verification._

- Know that a trial balance is a list of ledger balances at a particular date, split into debit and credit columns
- Understand that the main purpose of a trial balance is to test the **arithmetical accuracy** of double-entry records
- Identify the closing balance from each ledger account and enter it once only in the trial balance
- Classify common balances correctly, including purchases, revenue, returns, discount allowed, discount received, bank and bank overdraft
- Understand that assets, expenses and drawings are usually debit balances, while capital, liabilities and income are usually credit balances
- Explain that an agreed trial balance does not prove the accounting records are completely free from error
- Recognise that if the trial balance does not agree, the difference may be placed in a **suspense account** while errors are investigated
- Understand that the trial balance provides the starting figures for the income statement and statement of financial position

## Test Your Knowledge

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, look more closely at that area during your revision._

1. What is the main purpose of a trial balance?
2. Why are purchases usually shown in the debit column but revenue in the credit column?
3. How should a bank overdraft appear in a trial balance?
4. Why does a balanced trial balance not guarantee that all accounting records are correct?
5. Which balance from a ledger account is transferred into the trial balance: balance c/d, balance b/d, or both?

## Introduction

Trial balance preparation is one of the core bookkeeping checks in financial accounting. It sits between ledger work and financial statements. Once ledger accounts have been balanced, the bookkeeper extracts the balances and lists them in a trial balance to check whether total debits equal total credits.

For AQA, this topic is tested both as basic technique and as a source of later financial statement figures. That means you need more than a definition. You must be able to classify balances accurately, prepare the statement in the correct format, and explain its strengths and limits.

> **Key Term: trial balance**
> A statement listing the balances on ledger accounts at a particular date, with debit balances in one column and credit balances in another.

### Purpose of the trial balance

A trial balance is prepared mainly to test the **arithmetical accuracy** of double-entry bookkeeping. If every debit entry has been matched by an equal credit entry, the total of the debit balances should equal the total of the credit balances.

This is an arithmetic check, not a complete proof of correctness. It helps identify many bookkeeping errors, but not all of them.

A trial balance also has a second major purpose: it provides the list of balances used to prepare the financial statements. For a sole trader, these figures are then used in the **income statement** and the **statement of financial position**.

> **Key Term: arithmetical accuracy**
> The correctness of the numerical totals in the double-entry records, shown by total debits equalling total credits.

A business may prepare a trial balance regularly, often at the end of each month, not just at the year end. This helps errors get found earlier.

> **Test Tip:** If an exam question asks for the “purpose” of a trial balance, do not stop at “to check the books”. State both points: it checks the arithmetical accuracy of double entry and provides the starting balances for financial statements.

### How to prepare a trial balance step by step

The process starts only after ledger accounts have been balanced.

Step 1: balance each ledger account  
Find the closing balance on every account. In a traditional T account, this is the amount carried down and then brought down.

Step 2: identify the balance to transfer  
The figure used in the trial balance is the closing ledger balance. In practice, this is the **balance brought down** for the next period, not both the c/d and the b/d.

> **Key Term: balance brought down (b/d)**
> The opening balance on an account for the next period after the account has been balanced.

Step 3: enter each balance once only  
Each ledger balance must appear once, either in the debit column or in the credit column.

Step 4: total both columns  
Add the debit column and the credit column.

Step 5: compare the totals  
If both totals are equal, the ledger is arithmetically balanced. If not, errors must be investigated.

A simple worked example:

Suppose the ledger balances at 31 March are:

- Purchases £12,000 debit
- Revenue £18,500 credit
- Wages £4,200 debit
- Rent £1,300 debit
- Trade receivables £2,800 debit
- Trade payables £1,950 credit
- Bank £950 debit
- Capital £750 debit? No — capital is credit £750? That would be too small and unrealistic, so use a sensible figure:
- Capital £18,550 credit
- Drawings £1,800 debit

Now prepare the trial balance:

| Account           |       Dr £ |       Cr £ |
| ----------------- | ---------: | ---------: |
| Purchases         |     12,000 |            |
| Revenue           |            |     18,500 |
| Wages             |      4,200 |            |
| Rent              |      1,300 |            |
| Trade receivables |      2,800 |            |
| Trade payables    |            |      1,950 |
| Bank              |        950 |            |
| Capital           |            |     18,550 |
| Drawings          |      1,800 |            |
| **Total**         | **23,050** | **39,000** |

This does not balance, so one or more balances are wrong. Let us correct the capital to £2,550 credit? Still not enough. The correct credit total needed is £23,050, so if revenue is £18,500 and trade payables are £1,950, capital must be:

£23,050 - £18,500 - £1,950 = **£2,600**

Corrected trial balance:

| Account           |       Dr £ |       Cr £ |
| ----------------- | ---------: | ---------: |
| Purchases         |     12,000 |            |
| Revenue           |            |     18,500 |
| Wages             |      4,200 |            |
| Rent              |      1,300 |            |
| Trade receivables |      2,800 |            |
| Trade payables    |            |      1,950 |
| Bank              |        950 |            |
| Capital           |            |      2,600 |
| Drawings          |      1,800 |            |
| **Total**         | **23,050** | **23,050** |

This now balances.

Common student errors in preparation:

- entering both **balance c/d** and **balance b/d**
- missing out one ledger balance entirely
- placing a balance in the wrong column
  > **Test Tip:** In trial balance questions, check each item by asking: is this an asset, expense, drawing, capital, liability or income? That usually tells you the correct side immediately.

### Debit and credit balances: classification rules

The fastest way to place balances correctly is to learn the general rules.

Usually **debit balances** include:

- assets
- expenses
- drawings

Usually **credit balances** include:

- capital
- liabilities
- income
  > **Key Term: debit balance**
  > A ledger balance that is entered in the debit column of the trial balance.
  >
  > **Key Term: credit balance**
  > A ledger balance that is entered in the credit column of the trial balance.

Common debit balances:

- purchases
- sales returns or returns inwards
- discount allowed
- wages
- rent
- carriage inwards
- carriage outwards
- trade receivables
- cash
- bank, if the business has money in the bank
- non-current assets such as property, machinery and equipment
- drawings

Common credit balances:

- revenue
- purchases returns or returns outwards
- discount received
- capital
- loans
- trade payables
- bank overdraft

This is where many students slip up. A **bank account** can be either debit or credit:

- debit if it is an asset with money in the bank
- credit if it is overdrawn
  > **Key Term: bank overdraft**
  > A credit bank balance showing that the business owes money to the bank.

Two more important AQA points:

First, **accumulated depreciation** is normally shown as a separate credit balance. Do not net it off against the related asset in the trial balance.

Second, **allowance for receivables** is also normally shown as a separate credit balance. Do not deduct it from trade receivables in the trial balance unless the question specifically gives only a net figure.

A quick comparison table:

| Item              | Trial balance side |
| ----------------- | ------------------ |
| Purchases         | Debit              |
| Revenue           | Credit             |
| Sales returns     | Debit              |
| Purchases returns | Credit             |
| Discount allowed  | Debit              |
| Discount received | Credit             |
| Trade receivables | Debit              |
| Trade payables    | Credit             |
| Drawings          | Debit              |
| Capital           | Credit             |
| Loan              | Credit             |
| Bank overdraft    | Credit             |

Common student errors in classification:

- confusing **returns inwards** with **returns outwards**
- confusing **discount allowed** with **discount received**
- placing **bank overdraft** in the debit column

### What the trial balance does not prove

A balanced trial balance is useful, but it is limited. It proves only that the books are arithmetically balanced.

> **Key Term: suspense account**
> A temporary account opened when a trial balance does not agree, used while errors are being investigated and corrected.

Some errors make debit totals unequal to credit totals, so they are revealed by the trial balance. These include:

- one-sided entries
- unequal debit and credit entries
- errors in adding the trial balance
- incorrect account balancing
- transferring a balance to the wrong side

If the totals do not agree, the difference may be placed temporarily in a suspense account.

However, some errors are **not** shown by a balancing trial balance. These include:

- error of omission
- reversal of entries
- error of commission or mispost
- error of principle
- error of original entry
- compensating error

A good explanation in an exam is: a trial balance checks arithmetic, not accounting logic.

For example, if a payment for vehicle repairs is wrongly debited to vehicles instead of vehicle expenses, the debit and credit entries still balance. The trial balance agrees, but the records are still wrong.

Another important exam point concerns year-end adjustments. The initial trial balance often contains existing ledger balances before year-end adjustments are made. Items such as:

- closing inventory
- accruals
- prepayments
- depreciation for the year
- irrecoverable debts to be written off
- changes in allowance for receivables

may be given later as additional information, rather than already appearing in the trial balance.

That is why **closing inventory** is usually shown as a note, not as a trial balance balance. By contrast, **opening inventory** can appear in the trial balance.

## Key Point Checklist

_This article has covered the following key knowledge points:_

- A trial balance lists ledger balances at a particular date in separate debit and credit columns
- Its main purpose is to test the arithmetical accuracy of double-entry records
- A trial balance is prepared after balancing ledger accounts
- The balance transferred is the closing balance, usually the balance brought down
- Each ledger balance is entered once only in the trial balance
- Assets, expenses and drawings are usually debit balances
- Capital, liabilities and income are usually credit balances
- Purchases are debit, while revenue is credit
- Sales returns are debit, while purchases returns are credit
- Discount allowed is debit, while discount received is credit
- A bank overdraft is normally a credit balance
- An agreed trial balance does not prove that all accounting records are completely correct
- If the trial balance does not agree, the difference may be placed in a suspense account
- The trial balance provides the starting figures for the income statement and statement of financial position

## Key Terms and Concepts

- trial balance
- arithmetical accuracy
- balance brought down (b/d)
- debit balance
- credit balance
- bank overdraft
- suspense account


Verification of accounting records - Trial balance preparation