What is a trial balance?
Trial Balance is considered to be the heart of the business. All the activities that are carried out in any business organization are summarized in the trial balance. After the preparation of ledger, by taking all its balances and representing in a single worksheet on some specific date is known as the Trial Balance. Businesses divide their records into the following categories:
- A transaction that is recorded is the journal entry.
- Summarizing and categorizing is done in ledgers.
- Preparation of the worksheet is the trial balance.
All the balances of the ledger accounts that are classified into debit and credit when recorded in a single sheet are known as the trial balance. This is prepared on a specific date.
Related article: Ledger- The Second Step of Accounting
Features of Trial Balance
Trial Balance holds some of the noticeable features. They are as follows:
It should be known that the trial balance is just merely a statement or a record and not any sort of account.
- Proof of arithmetical accuracy:
With the preparation of the trial balance, the accuracy of the arithmetic transactions can be recorded. Further, the profit and loss account and the balance sheet can also be prepared from the trial balance.
- Prepared at the end of the period:
The trial balance is usually, organized at the end of a specific period of time. it may be monthly, quarterly, biannually, annually.
- Contains a list of balance:
The balances of the various ledger account for a particular time period as needed by the users is recorded in the trial balance.
- Helps to prepare final accounts:
Since all the ledger balances are contained in the trial balance, therefore, it is not possible to prepare the final accounts without the trial balance.
Objectives of Trial Balance
Following are the objectives of the trial balance
- To test the arithmetical accuracy
There is no doubt that trial balance provides arithmetical accuracy. Therefore, if the trial balance agrees, it can be said that the posting of the different ledger accounts and other entries is exact. And on the other hand, if it doesn’t agree, there may be some errors that need to be detected.
- To help in locating/detecting the errors
This point can be read for the case if the trial balance doesn’t agree. There may arise some of the errors that the accountant needs to find out in order to make the trial balance agree. Whether the errors are small or big they have to be worked upon after they are detected.
- To summarize the information about the ledger accounts
A trial balance comprises of all the ledger accounts and other balances and the summarized data related to the ledgers- if the account holds debit or the credit balance, it can be seen easily.
- To help in preparing the final accounts
It is extremely difficult or next to impossible to fix the final accounts of any business organization in the absence of the trial balance. In order to find out the outcomes of the functioning and also the financial position, trading and profit and loss account and balance sheet are created.
Methods of preparing Trial Balance
In order to prepare the trial balance, there are two methods:
- Total or gross trial balance
- Balance or net trial balance