A trial balance is a financial statement prepared after the balancing off of the ledger accounts. It is mainly used to verify whether all entries have been correctly made into the various accounts in the ledger.
What Is Trial Balance?
Trial balance are prepared to know the closing balances of accounts.
There are three methods for the preparation of Trial Balance;
1. Total or Gross Trial Balance.
2. Balance or Net Trial Balance.
Under the Total or Gross Trial Balance, the two sides of all the ledger accounts are totaled up. Thereafter, a list of all the accounts is prepared in a separate sheet of paper with two "amount" columns on the right-hand side. The first one for debit amounts and the second one for credit amounts. The total of debit side and credit side of each account is then placed on "Debit Amount" column and "Credit Amount" column respectively of the list. Finally, the two columns are added separately to see whether they agree or not. This method is generally not followed in practice.
Under Balance or Net Trial Balance, first of all the balances of all ledger accounts are drawn. Thereafter, the debit balances and credit balances are recorded in "Debit Amount" column and "Credit Amount" column respectively and the two columns are added separately to see whether they agree or not. This is the most popular method and generally followed.
The various steps involved in the preparation of "Balance Trial Balance" are:
a) Find out the balance of each account in ledger.
b) Write up the name of account in the first column.
c) Record the account number in second column.
d) Record the debit balance of each account in Debit column and credit balance in credit column.
e) Add up the debit and credit columns and record the totals.
1. Total or Gross Trial Balance.
2. Balance or Net Trial Balance.
Under the Total or Gross Trial Balance, the two sides of all the ledger accounts are totaled up. Thereafter, a list of all the accounts is prepared in a separate sheet of paper with two "amount" columns on the right-hand side. The first one for debit amounts and the second one for credit amounts. The total of debit side and credit side of each account is then placed on "Debit Amount" column and "Credit Amount" column respectively of the list. Finally, the two columns are added separately to see whether they agree or not. This method is generally not followed in practice.
Under Balance or Net Trial Balance, first of all the balances of all ledger accounts are drawn. Thereafter, the debit balances and credit balances are recorded in "Debit Amount" column and "Credit Amount" column respectively and the two columns are added separately to see whether they agree or not. This is the most popular method and generally followed.
The various steps involved in the preparation of "Balance Trial Balance" are:
a) Find out the balance of each account in ledger.
b) Write up the name of account in the first column.
c) Record the account number in second column.
d) Record the debit balance of each account in Debit column and credit balance in credit column.
e) Add up the debit and credit columns and record the totals.
The balance sheet is like a snapshot of the company’s assets, liabilities and the owner’s equity at a particular date in time. The balance sheet includes the assets or what the company owns in the form of current assets (cash, accounts receivables etc) and long term assets (plant and property).then it also has the liabilities section or what the company owes to its suppliers and banks etc. Then there is another section, the owner’s equity section which basically shows how much money the owner’s have put into the business. The balance sheet equation is:
Assets = liabilities + owner’s equity
The trail balance is like a tentative balance sheet that shows all the debit and credit entries in the form of T accounts so as to check that the balance sheet equation requirements are met or not, that is are the assets equal t the sum of liabilities and equity.
Assets = liabilities + owner’s equity
The trail balance is like a tentative balance sheet that shows all the debit and credit entries in the form of T accounts so as to check that the balance sheet equation requirements are met or not, that is are the assets equal t the sum of liabilities and equity.
In simple words ,it is a worksheet that shows the records of expenses and incomes altogether.These are shown in such a manner so as to estimate about the profit or loss of any business.
Total method but excluding closed a/c
The fundamental principle of Double entry system is that at any stage, the total of Debits must be equal to the total of credits. If entries are recorded and posted correctly, the ledger will reflect equal debits and credits, and the total credit balances will then be equal to the total debit balances.
Every business concern prepares Final Accounts at the end of the year to ascertain the result of the activities of the whole year. To ensure correct result, the concern must be free from doubt that the books of accounts have been correctly recorded throughout the year. Trial Balance is prepared to test the arithmetical accuracy of the books of accounts. As we know that under double entry system for every transaction, one account is debited and another account is credited with an equal amount. If all the transactions are correctly recorded strictly according to this rule, the total amount of Debit side of all the ledger accounts must be equal to that of Credit side of all the ledger accounts. This verification is done through Trial Balance.
If the trial balance agrees, we may reasonably assume that the books are correct. On the other hand, if it does not agree, it indicates that the books are not correct, and there are mistakes somewhere. The mistakes are to be detected and corrected; otherwise, correct result cannot be ascertained. There are, however, a few types of errors, which the trial balance cannot detect. In other words, the trial balance will agree in spite of the existence of those errors.
Every business concern prepares Final Accounts at the end of the year to ascertain the result of the activities of the whole year. To ensure correct result, the concern must be free from doubt that the books of accounts have been correctly recorded throughout the year. Trial Balance is prepared to test the arithmetical accuracy of the books of accounts. As we know that under double entry system for every transaction, one account is debited and another account is credited with an equal amount. If all the transactions are correctly recorded strictly according to this rule, the total amount of Debit side of all the ledger accounts must be equal to that of Credit side of all the ledger accounts. This verification is done through Trial Balance.
If the trial balance agrees, we may reasonably assume that the books are correct. On the other hand, if it does not agree, it indicates that the books are not correct, and there are mistakes somewhere. The mistakes are to be detected and corrected; otherwise, correct result cannot be ascertained. There are, however, a few types of errors, which the trial balance cannot detect. In other words, the trial balance will agree in spite of the existence of those errors.
