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.

Example

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.

Mandalika

e

Updated on: 12-Aug-2020

444 Views

Kickstart Your Career

Get certified by completing the course

Get Started