Concept of Trial Balance:
- Trial Balance is the statement which is prepared at the end of a fiscal year.
- It is prepared to check arithmetical accuracy of the book of account.
- It helps to prepare final account.
Objective for Trial Balance:
The following are the main objectives of preparing Trial Balance:
1. To check the arithmetical accuracy:
In double entry, every debit has an equivalent credit. Even in general journal, it has been seen that the total of debit equals the total of credits. Similarly, if the debit and credit tally in trial balance, it indicates that the book of account are arithmetically accurate.
2. It guides in preparing final accounts:
Once, all the journal entries have been passed, ledger postings have been recorded, and the trial balance matches, then all the financial accounts are prepared, thereby that the balances in the trial balance become the base for recording all the accounting data further in the final accounts.
3. To provide information:
Trial Balance is the summary of assets ,liabilities, expenses ,income etc. So, it provides all the information’s about it.
Limitations of Trial Balance:
The following are some of the common errors which are not disclosed by a trial balance:
- It may hide errors of omission. Some transactions are not journalised at all. Even a correctly balanced Trial Balance cannot reveal this mistake.
- If a journal entry with an incorrect amount gets recorded in both accounts, the Trial Balance will not detect that error.
- A journal entry may have the right amount, but the accountant may have entered it under the wrong accounting heads. The Trial Balance cannot identify such mistakes.
- If a journal entry is missing in the ledger, it will not reflect in the Trial Balance.
Preparation of Trial Balance:
The following steps should be take to prepare a Trial Balance:
- Group all those accounts showing debit balance and show them on the left hand side of the trial balance.
- Group all those accounts showing credit balance and show them on the right hand side of the trial balance.
- Total the debits and credits and they must be equal whatever the method of preparing the trial balance is.
Format of Trial Balance:
The following is the most widely followed format of trial balance.
