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What are the steps involved in preparing the trial balance?
Trail balance is worksheet which consists of all ledger balances and columned them as debit and credit. Later these debit and credit columns are equaled. Trail balance ensures entries are mathematically proven. It is prepared at end of reporting period and repeated for every period.
To understand trail balance once should understand following concepts
- Double entry system
The steps which are followed to prepare the trial balance are as follows −
- Step 1 − Prepare a columnar table which consists of four columns namely account number in column 1, account name in column 2, debit in column 3 and credit in column 4.
- Step 2 − Every account is assigned an account number on a chart of accounts. All debit and credit totals are listed.
- Step 3 − Now, record each account entered in their respective columns (debit or credit based on transaction). Now, check the debit side total is equal to credit side total. If the total is equal then it is okay, otherwise check each entry with a general ledger and make appropriate corrections to make it equal.
- Step 4 − To minimise the errors, prepare trial balance monthly (because of fewer transactions). Errors can be rectified quickly.
- Step 5 − If totals in trial balance are not balanced, then there must be an error in recording an entry. Recheck the entries and add, if any entries are remaining or remove the entries, if any double entries are recorded etc.
- Step 6 − Standard technique of finding the error is, the difference amount is divided by 2 and look at the account with a larger total (half the difference).
- Step 7 − Another way of finding an error is, if the difference is divided by 9 evenly. Then, it will be a transposition error.
- Step 8 − Other errors are as follows −
Ledger account is not included.
Wrong ledger accounts entries.
Journal entries are wrongly posted in ledger accounts.
- Mathematical accuracy of entries
- Provides bird view of accounting transactions
- Required to prepare financial statements
- Analyzed at the time of Audits
- Credibility is defined
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