Search any of this in English and you will mostly find pages written for the Indian CBSE syllabus. Much of it overlaps; some of it quietly does not, and you will not know which is which in the exam hall. Everything below follows your own book.
1. The two groups
Every account sits in exactly one of two groups. That decides the side.
| Group | Contains | Side |
|---|---|---|
| Debit | Assets, Expenses | Debit |
| Credit | Income, Liabilities, Owner's Equity | Credit |
Assets and Expenses → Debit. Income, Liabilities and Owner's Equity → Credit. Almost everything else on this page is a special case of these two lines.
2. Which accounts do NOT come into the trial balance
Four rules, and one date check that decides three of them.
- Except Beginning Inventory, nothing "Opening" or "Beginning" comes. Beginning Inventory (Opening Stock) is the single exception and it does come, on the debit side. Opening Cash in hand, Opening Bank Balance, Opening Debtors — all stay out.
- Ending Inventory does not come. (Closing Stock.)
- Unused or Closing Stationery does not come.
- A Contingent Liability does not come.
The date check
When the question gives a date instead of the word, compare it with the trial balance's own date. Dates match → Ending. Dates do not match → Beginning.
| Item in the question | Read as | Trial balance |
|---|---|---|
| Cash (1 July, 2025) | no match → Beginning | ✗ does not come |
| Inventory (1 July, 2025) | no match → Beginning | ✓ comes (the exception) |
| Inventory (30 June, 2026) | match → Ending | ✗ does not come |
"Does not come" is not the same as "is not an asset." Ending Inventory and unused stationery still count when a question asks you for total assets or current assets. They are excluded from the trial balance, not from the business.
3. The Adjusted Purchase rule — where rules 1 and 2 invert
This is the trap that catches students who memorised the list instead of the reason. If the question gives Adjusted Purchase, the first two rules flip.
Adjusted Purchase = Beginning Inventory + Net Purchase − Ending Inventory
Both inventories are already inside that single figure. Beginning Inventory was added in, so it must not be listed again. Ending Inventory was subtracted out, so it now has to appear separately as the asset it is.
| Item | Normally | With Adjusted Purchase given |
|---|---|---|
| Beginning Inventory | ✓ comes (Debit) | ✗ does not come |
| Ending Inventory | ✗ does not come | ✓ comes (Debit) |
Example. The question gives Adjusted Purchase 1,20,000; Beginning Inventory 20,000; Ending Inventory 30,000. The trial balance takes Adjusted Purchase 1,20,000 (Debit) and Ending Inventory 30,000 (Debit). Beginning Inventory is left out.
See Adjusted Purchase and remember: Opening out, Ending in.
4. Outstanding and Prepaid — two signals, four cases
Outstanding Salary, Prepaid Rent, Advanced Commission — students stall here because they try to memorise each name. You only need to read two things.
| Signal word | Signal |
|---|---|
| Outstanding / Due / Accrued | Debit |
| Advanced / Prepaid | Credit |
Then look at the base account — the account the signal is attached to. Salary is an expense (debit group); Rent Received is an income (credit group).
Same group → Current Liability (Credit). Different groups → Current Asset (Debit).
| Account | Signal + base | Same or different | Answer |
|---|---|---|---|
| Outstanding Salary | Debit + Debit | Same | Current Liability → Credit |
| Advanced Commission Received | Credit + Credit | Same | Current Liability → Credit |
| Outstanding Rent Received | Debit + Credit | Different | Current Asset → Debit |
| Prepaid Rent | Credit + Debit | Different | Current Asset → Debit |
Learn the two signals and you never have to memorise a fifth example. The same reasoning handles a name you have never seen before.
5. Provision, Reserve and Fund
- Every Provision, Allowance or Reserve → Credit. Allowance for Bad Debts, Provision for Bad Debts, Allowance for Doubtful Debts, General Reserve, Provision for Depreciation (Accumulated Depreciation), Provision for Income Tax.
- Every Fund → Credit. Provident Fund, Reserve Fund, Dividend Fund, Dividend Equalization Fund.
- ⚠ One exception: Provident Fund Investment is Debit — it is an investment, so it is an asset.
6. Contra accounts
A contra account sits opposite a main account and reduces it. Net = main − contra.
- Purchase ↔ Purchase Return, Purchase Discount
- Sales ↔ Sales Return, Sales Discount
- Bad Debts ↔ Provision for Bad Debts
- Capital ↔ Drawings, Income Tax, Life Insurance Premium
- Fixed assets (furniture, machinery) ↔ Accumulated Depreciation
Return Inward is Sales Return, not a purchase item. Never subtract it from Purchase. Return Outward is the Purchase Return.
7. The Suspense Account
When the two totals refuse to agree, the difference goes into a Suspense Account — on the side that is short. If the debit total is smaller, Suspense goes on the debit side for the difference, and the trial balance agrees while the real error is hunted down.
8. How to prepare one
- Take the balance of every ledger account.
- Decide the group — asset/expense, or income/liability/owner's equity.
- Put the balance on the matching side.
- Apply the exclusion rules, and check for Adjusted Purchase before you touch the inventories.
- Total both sides. Equal totals mean the trial balance agrees.
9. What students get wrong most often
- Putting a balance on the wrong side — an asset landing on credit.
- Listing Ending Inventory when there is no Adjusted Purchase, or leaving it out when there is.
- Reading "Outstanding" as automatically a liability. It depends on the base account.
- Treating Bad Debts as an asset because the name mentions a receivable. Bad Debts is an expense.
- Believing that an agreeing trial balance means the accounts are correct.
Does an agreeing trial balance prove the accounts are right?
No. It proves debits equal credits, nothing more. A transaction omitted entirely, an amount posted to the wrong account, or two mistakes that cancel each other will all leave the totals perfectly equal.
Reading it is the easy part
You have just read the rules. In an exam you have to apply them, to a board full of names you have not seen before, with nobody to tell you whether row nine is right. That is a different skill, and it is the only one worth practising.
On HiBi Star you build the trial balance yourself — pick the account, pick the side, type the amount — and it gets checked. Wrong rows are told to you and the correct answer is never shown. Nothing opens until the whole thing is right. The first 11 classes are free, 2 a day, no card.