What is Trial Balance?

Key Points of Trial Balance

  • Trial Balance examine mathematical accuracy
  • Trial Balance always be equal i.e Total Debits = Total Credits
  • Closing Stock never appear on the Trial Balance
  • Suspense Account to be shown in the Trial Balance which should be rectified before preparation of Final Account.

What is Trial Balance?

This is the list of all general ledger accounts contained in the ledger of a business. It can be said as a “Bookkeeping Worksheet” to compile debit and credit balance of ledger accounts. Both revenue and capital nature is considered for making a trial balance. This is prepared periodically, usually at the end of reporting period.

Each ledger balance will hold either a debit balance or a credit balance. Debit balance will be shown in debit column and Credit balance will be shown in credit column in trial balance. Company’s financial statements can be produced using the ledger balance as stated in trial balance.

Purpose of Trial Balance Preparation

We know, in a dual concepts Debit and Credit will always be equal. Trial balance will help you to verify whether total sum of the debit balances is equal to the sum of the credit balances. Before preparation of Financial statement, Trial balance preparation is very important to confirm whether any arithmetical accuracy problem exist there. It is wise to prepare trial balance at quarterly interval to check the arithmetical accuracy. Many organisation doing this once in every accounting period  but there would be problem due to unlimited transactions. Here is a list of purpose of trial balance preparation:

  • To check the arithmetic accuracy of ledger balances

Preparation of Trial Balance

Following steps to be followed for the preparation of a accurate Trial Balance:

  • All ledger balances whether Capital or Revenue in nature to be posted in trial balance
  • If debit side is larger than credit side, it will consider as Debit balance, on the other hand, if credit side is larger than debit side than it will consider as Credit balance.
  • Debit balance comprises: Assets, Expenses, Losses, Investment, Drawings, Purchase Account and Sales Return Account.
  • Credit balance comprises: Liabilities, Provisions, Capital, Reserve and Surplus, Sales Account and Purchase return account.
  • Trial balance to be cast to identify errors
  • Preparation of suspense account temporarily
  • Earlier identified errors to be corrected by passing a rectified entries
  • Any adjustment required at the period end, to be incorporated into the trial balance.

Considerable Points of preparing Trial Balance

If any journal not pass though it was necessary, it will not show up as errors in trial balance and debit & credit will be equal.

If any transaction incurred in wrong account, it will not show up as error.

If accounting journal entry not post in to journal ledger, it will not show up in the trial balance.

Common Errors in Trial BalanceC

Accountant frequently doing following mistakes when prepare Trial balance:

  • Entries made twice: If an entry made twice, the trial balance will not show any difference. This is a very common issues
  • Entry not made at all: It will be difficult to find like these errors because this entry totally lapsed from accounts balance. In this respect a check list can be prepared, and verify them whether all entry properly posted.
  • Entries to the wrong Account: Entry to be passed in wrong head. A Standard check list to be prepared to ensure whether entries have been made in proper head.
  • Reversed entries: Debit may be mistakenly recorded as credit or vice versa. This issue may be visible on the trial balance.
  • Transposed number: This is one kind of typing mistakes, wrong digits may be typed. This errors may be easily find out.
  • Unbalanced entries: This errors are impossible in computerized accounting software but happening in manual system.

Format of Trial Balance: