PROOF WITHOUT A TRIAL BALANCE
17. A comparison of the accounts in the last trial balance with the working balance sheet shows them to be arranged in the order in which they would appear in the balance sheet and profit and loss statements.
WORKING BALANCE SHEET
Fig. 16a. Working Balance Sheet for a Manufacturing Business
It should be remembered that manufacturing and trading accounts are subdivisions of the profit and loss account, and that the profit and loss account is a statement of income and disbursements including differences in inventories.
If it is desired to show the actual condition of the business at the end of each month, the inventory must be added. There may be objections to actually closing the books each month, but the complete statement can be made by adding the current inventories as shown in the working balance sheet illustrated. The amounts of these inventories and the gross and net current profits are, in such cases, memoranda only. The inventories may be arbitrary estimates, and while the results shown may not be exact they will be found of value for purposes of comparison; and care in estimating inventories will greatly increase their value.
Reference to our working balance sheet shows that the profit and loss statements—with current inventories added—agrees with the balance sheet in one respect. The current profit exactly agrees with the difference between assets and liabilities as shown by the balance sheet.
To prove the ledger without the usual trial balance these rules should be followed:
First: Make up trading and profit and loss statements, taking balances direct from the ledger accounts, deducting current inventories.
Second: Make up balance sheet using current inventories in listing assets.
If the current profit and loss agrees with the difference between assets and liabilities the ledger may be assumed to be in balance. This is, in effect, a sectional trial balance, since the accounts in the trial balance are all represented in the two statements. The reliability of this proof is not affected by the fact that the inventories are arbitrary—and perhaps inaccurate—since the same amounts are used in both the balance sheet and profit and loss statement.