Trial balance is not an account; it is a statement.
It is the balance of the ledger accounts.
Trial balance is internal document.
It is prepared to check arithmetical accuracy of debit and credit balance.
If there is any error, it is rectified with journal entries.
Trial balance is base for preparing final account.
After preparing trial balance, we can prepare trading account, profit and loss account and balance sheet.
Double entry system of book-keeping is the backbone of all accounting.
According to this rule each debit entry must be equal to credit entry and vice-versa.
Trial balance is prepared to check the arithmetical accuracy of the accounting entries.
This is done to ensure that the fundamental principle of double entry book-keeping has been followed for all transactions.
According to R N Carter, “Trial balance is the list of debit and credit balances, taken out from ledger; it also includes the balances of cash and bank taken from cash book.”
According to Microsoft Corporation, “Trial balance is a statement to check the debits and credits.”
Click on link for YouTube videos topic wise :
Basic Journal Entries in Nepali
Basic Journal Entries
Journal Entry and Ledger
Trial Balance and Adjusted Trial Balance
Bank Reconciliation Statement (BRS)
Click on link for YouTube videos chapter wise:
Financial Accounting and Analysis (All videos)
Accounting for Long Lived Assets
Analysis of Financial Statement
The main objectives of trial balances are given below:
Check arithmetical accuracy
Trial balance helps to check arithmetical errors.
Trial balance determines only the arithmetical accuracy and not the accounting accuracy.
If debit and credit balances are equal, we assume ledgers are correct.
Help to find-out accounting errors
The disagreement of a trial balance indicates that there are some accounting errors.
Trial balance helps to find-out some accounting error.
Summarize the financial transactions
Trial balance is the summary of all financial transaction during an accounting period.
It is prepared from all accounting balances.
Base for final account
Trial balance is the base to prepare final account.
Without trial balance, it is very difficult to prepare final account.
Final account contains trading account, profit and loss account and balance sheet.
Debit and credit
Trial balance provides overall summary of all the ledger accounts.
It separates debit and credit of summarised ledger account.
Expense and assets are shown in debit side but income and liabilities are shown on credit side.
Comparative study of each account
To prepare trial balance, we need balances of accounts.
From balances of accounts, we can compare data of last year with current year.
It also helps to make financial budget by comparing last year’s trial balance.
There are three types of trial balance; they are:
Unadjusted or normal trial balance
The trial balance is prepared without making any adjustments; it is known unadjusted trial balance.
It is also called rough trial balance.
Adjusted trial balance
Adjustment of journal entry with unadjusted trial balance is known adjusted trial balance.
Firms usually redraft their trial balance after adjusting journal entries to check the balance.
It also provides a complete list of ledger accounts balances.
The post-closing trial balance
The trial balance which is prepared after passing the closing entries for temporary accounts and before a new accounting period begins is known post-closing trial balance.
The post-closing trial balance gives the period-end account balances.
The debit and credit of trial balance must be equal.
When the totals of the debit and credit column of a trial balance are not the same, it is known as disagreement of a trial balance.
It is due to errors of ledgers.
When such a disagreement occurs, it is necessary to tally the trial balance.
Then we should prepare final accounts.
Otherwise, final accounts will not be equal or accurate.
Some useful steps to detect errors are given below:
(a) Check carefully the preparation of the trial balance.
(b) Find out the difference of the debit and credit of the trial balance.
(c) Divide by two for difference amount.
(d) Check whether there is any account head with a balance equal to this quotient.
(e) If there is quotient, then see whether this balance has been taken into the concerned column or not.
(f) Check if all ledger balances are included in the trial balance.
(g) Check the balancing of all accounts.
(h) Confirm that all postings are made.
(i) See that all the opening balances are brought forward and correctly.
(j) Scrutinize all postings thoroughly.
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