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Trial Balance

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A trial balance is a statement of debit and credit balance of the ledger accounts which is prepared in order to prove the arithmetical accuracy of the books of account. It is prepared after the preparation of various personal, real and nominal accounts. It is also called the summary of assets, capitals, liabilities, expenses, income, etc. drawn from the ledger account.

The following are the main definitions of trial balance:

“Trial balance is the list of debit and credit balances taken out from the ledger, it also includes the balances of cash and bank taken from cash book.” – R. N. Carter

“Trial balance is a list of balances debit or credit standing in the books of the trader at any given date.” – J. R. Batliboi

Objectives of Trial Balance

The following are the main objectives of a trial balance:

  1. To obtain summary information
    It provides summary information of all the ledger accounts in one place. It presents the balances of all the assets, liabilities, capital, incomes and expenses relating to a particular date.

  2. To help in making comparison and decision
    It helps in comparing the balances of assets, liabilities, capital, incomes, and expenses between two different periods. Such comparison helps in making a proper judgment of different activities of the business and arriving at important decisions.

  3. To check arithmetical accuracy
    The trial balance checks an arithmetical accuracy of the books of accounts. It checks whether the total of debit balances equals the total of credit balances or not. If the trial balance agrees, it proves the arithmetical accuracy but if it does not, it indicates the existence of errors in the books of accounts, which are to be located and rectified.

  4. To facilitate for preparing the final accounts
    It serves the basis for preparing the final accounts. From the trial balance, the balances of incomes and expenses are placed on the trading and profit and loss accounts and balances of assets, liabilities and capital are placed on the balance sheet.

  5. To help for locating and rectifying errors
    It helps to locate the accounting errors at an early stage. Its disagreement is the signal for the existence of accounting errors in the books of accounts, which compels the accountant to locate and rectify them in time.

  6. To help in minimizing errors and frauds
    It helps in minimizing the different types of accounting errors and frauds. If the errors and frauds are committed, the trial balance disagrees. Hence, it gives moral pressure to the accounting personnel to maintain books of accounts with great care and honesty.

Importance

The trial balance is important due to following reasons:

  • It summarizes all financial transactions of the business.
  • It checks the arithmetical accuracy of recordings of all financial transactions of the business.
  • It helps in locating errors by providing a starting point for the location of errors committed if any.
  • It provides a basis for the preparation of final accounts.

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Methods of Preparation of Trial Balance

The trial balance can be prepared on daily or monthly or yearly basis as per the requirement of the business. It is prepared on a given date on a separate sheet of paper. It is prepared either using the total method or balance method or compound method.

  1. Total method
    Under the total method, the trial balance is prepared with the debit and credit totals of all the ledger accounts.
  2. Balance method
    Under the balance method, the trial balance is prepared with the debit and credit balances of all the ledger accounts.
  3. Compound method
    Under the compound method, the trial balance is prepared with the debit and credit totals and balances of all the ledger accounts. Hence, the compound method is the combination of total and balance methods, which is also known as total cum balance method.



  • A trial balance is a statement of debit & credit balance of the ledger accounts which is prepared in order to prove the arithmetical accuracy which is prepared in order to prove the arithmetical accuracy of the books of account. 
  • Under the total method, the trial balance is prepared with the debit and credit totals of all the ledger accounts.
  • Under the balance method, the trial balance is prepared with the debit and credit balances of all the ledger accounts.
  • Under the compound method, the trial balance is prepared with the debit and credit totals and balances of all the ledger accounts.
  • The compound method is the combination of total and balance methods, which is also known as total cum balance method.
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Very Short Questions

A trial balance is a statement of debit & credit balance of the ledger accounts which is prepared in order to prove the arithmetical accuracy of the books of account. It is prepared after the preparation of various personal, real & nominal accounts. It is also called the summary of assets, capitals, liabilities, expenses, income, etc. drawn from the ledger account.

According to R. N. Carter,“Trial balance is the list of debit and credit balances, taken out from the ledger; it also includes the balances of cash and bank taken from cash book.”

According to J. R. Batliboi,“Trial balance is a list of balances debit or credit standing in the books of a trader at any given date.”

From the above definitions, it is obvious that a trial balance is a list of debit and credit balances of all the ledger accounts extracted on a given date. It is not an account rather only a statement. It is not a part of books of accounts maintained under double entry system. It is the statement of debit and credit balances of all the assets, liabilities, capital, incomes and expenses. It is the prepared in a separate sheet of paper to verify the arithmetical accuracy of books of account.

A trial balance is prepared for following reasons: -

  1. To obtain summary information
    It provides summary information of all the ledger accounts in one place. It presents the balances of all the assets, liabilities, capital, incomes and expenses relating to a particular date.

  2. To help in making comparison and decision
    It helps in comparing the balances of assets, liabilities, capital, incomes, and expenses between two different periods. Such comparison helps in making aproper judgment of different activities of the business and arriving at important decisions.

  3. To check arithmetical accuracy
    The trial balance checks an arithmetical accuracy of the books of accounts. It checks whether the total of debit balances equals the total of credit balances or not. If the trial balance agrees, it proves the arithmetical accuracy. If it does not agree, it indicates the existence of errors in the books of accounts, which are to be located and rectified.

  4. To facilitate for preparing the final accounts
    It serves the basis for preparing the final accounts. From the trial balance, the balances of incomes and expenses are placed on the trading and profit and loss accounts and balances of assets, liabilities and capital are placed on the balance sheet.

  5. To help for locating and rectifying errors
    It helps to locate the accounting errors at theearly stage. It's disagreement is the signal for the existence of accounting errors in the books of accounts, which compels the accountant to locate and rectify them in time.

  6. To help in minimizing errors and frauds
    It helps in minimizing the different types of accounting errors and frauds. If the errors and frauds are committed, the trial balance disagrees. Hence, it gives moral pressure to the accounting personnel to maintain books of accounts with great care and honesty.

The following are the advantages of trial balance:

  1. It verifies the arithmetical accuracy of recording and posting of financial transactions.
  2. It facilitates for preparing final accounts.
  3. It helps in locating, preventing and rectifying errors and frauds.
  4. It helps in the internal audit by supplying complete, reliable and accurate accounting information.
  5. It proves the authenticity of the balance sheet prepared by the business on the given date.
  6. It presents the position of all the accounts in one place.

The trial balance can be prepared on daily or monthly or yearly basis as per the requirement of the business. It is prepared on a given date in a separate sheet of paper. It is prepared either using total method or balance method or compound method. The following are the procedures of preparing trial balance:

  1. Total method
    Under the total method, the trial balance is prepared with the debit and credit totals of all the ledger accounts.
  2. Balance method
    Under the balance method, the trial balance is prepared with the debit and credit balances of all the ledger accounts.
  3. Compound method
    Under the compound method, the trial balance is prepared with the debit and credit totals and balances of all the ledger accounts. Hence, the compound method is the combination of total and balance methods, which is also known as total cum balance method.

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  • The objective of preparing the trail balance is ______.

    to help in minimizing errors and frauds


    all the options are correct


    to obtain summary information


    to check arithmetical accuracy


  • "Trail balance is a list of balances debit or credit standing in the books of a trader at any given date." Who said this?

    R. N. Carter


    A. N. Agrawala


    R. Pickle


    J. R. Batliboi


  • The trial balance ______.

    is a formal financial statement.


    provides a listing of every account in the chart of accounts.


    provides a listing of the balance of each account in active use.


    is used to prove that there are no errors in the journal or ledger.


  • The trail balance helps in minimizing the different types of accounting ______.

    frauds


    errors


    mistakes


    all the options are correct


  • The trial balance serves the basis for preparing the ______.

    accounting equation


    final accounts


    journal


    ledger


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