What is trial balance in accounting?

Finance ManagementAccountingAcademic Content

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.

Example

Account titleDebitCredit
Trail balance sheet of XYZ company as on 31 Jan 2013

RsRs
Share capital
200000
Furniture & fixture75000
Building125000
Creditor
90000
Debtors30000
Cash60000
Sales
130000
Cost of sales90000
General and administrative expenses40000

420000420000

Some of the advantages of trail balance are −

  • Arithmetical accuracy.
  • Aids in audit.
  • Useful in preparation of financial statements.
  • Credibility.

Some of the limitations are as follows −

  • Error of omission.
  • Error of principle.
raja
Published on 12-Aug-2020 11:11:21
Advertisements