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What is trial balance in accounting?
Trial balance is a worksheet which consists of all ledger balance in a single sheet. All ledger balances are compiled into credit and debit columns (total should match). In other way, it can also be explained by the following steps −
- Recording of business transaction in a journal entry.
- Summarise and categorise them into a ledger.
- Create a worksheet and make a trial balance (balances credit and debit).
Purpose of trial balance is −
- Trail balance is the first step in preparing financial statements.
- If balances are not matched in trail balance, difference will be rectified and adjusted before preparing financial statements.
- Ensures account balances.
- Assists in identification of errors.
Steps in preparation of trial balance are −
- Each ledger account balances are calculated.
- Record debit/credit in trail balance.
- Calculate respective totals in two columns.
- Check if debit is equal to credit.
|Trail balance sheet of XYZ company as on 31 Jan 2013|
|Furniture & fixture||75000|
|Cost of sales||90000|
|General and administrative expenses||40000|
Some of the advantages of trail balance are −
- Arithmetical accuracy.
- Aids in audit.
- Useful in preparation of financial statements.
Some of the limitations are as follows −
- Error of omission.
- Error of principle.
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