Theory question 103
Trial Balance(a) Explain three differences between a trial balance and a balance sheet.
(b) Explain the following (i) bank loan; (ii) bank overdraft; (iii) standing order; (iv) credit transfer.
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(a) Any three: a trial balance lists all ledger balances (debits and credits), a balance sheet shows only assets, liabilities and capital; a trial balance checks arithmetical accuracy, a balance sheet shows financial position at a date; a trial balance is prepared before final accounts, a balance sheet after the trading and profit and loss account; a trial balance is an internal working paper, a balance sheet is a formal statement published to users; balance sheet items are classified (fixed/current, etc.), trial balance items only as debit or credit.
(b)(i) Bank loan: a fixed sum lent by a bank for an agreed period, with interest, repayable on set dates; credited to the customer's loan account.
(ii) Bank overdraft: permission for a current-account holder to draw more than the balance in the account up to a limit; interest is charged only on the amount overdrawn.
(iii) Standing order: the customer's instruction to the bank to pay a fixed amount to a named person at regular intervals.
(iv) Credit transfer: payment made directly through the bank into the account of the payee (e.g. salaries, payments to creditors) without using cheques.
In (a) state each difference as a contrast between the two.