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Trial balance is a statement prepared with the balances or total of debits and credits of all the accounts in the ledger to test the arithmetical accuracy of the ledger accounts. As the name indicates it is prepared to check the ledger balances. If the total of the debit and credit amount columns of the trail balance are equal, it is assumed that the posting to the ledger in terms of debit and credit amounts is accurate. The agreement of a trail balance ensure arithmetical accuracy only, A concern can prepare trail balance at any time, but its preparation as on the closing date of an accounting year is compulsory.
According to M.S. Gosav (The Substance of Accountancy) “Trail balance is a statement containing the balances of all ledger accounts, as at any given date, arranged in the form of debit and credit columns placed side by side and prepared with the object of checking the arithmetical accuracy of ledger postings”.
OBJECTIVES OF PREPARING A TRAIL BALANCE
Trial balance is prepared to check arithmetic accuracy.
(i) It gives the balances of all the accounts of the ledger. The balance of any account can be found from a glance from the trail balance without going through the pages of the ledger.
(ii) It is a check on the accuracy of posting. If the trail balance agrees, it proves that both the aspects of each transaction are recorded and that the books are arithmetically accurate.
(iii) It facilitates the preparation of profit and loss account and the balance sheet.
(iv) Important conclusions can be derived by comparing the balances of two or more than two years with the help of trail balances of those years.
FEATURES OF TRIAL BALANCES
(i) A trial balance is prepared as on a specified date.
(ii) It contains a list of all ledger accounts including cash account.
(iii) It may be prepared with the balances or totals of Ledger accounts.
(iv) Total of the debit and credit amount columns of the trial balance must tally.
(v) It the debit and credit amounts are equal, we assume that ledger accounts are arithmetically accurate.
(vi) Difference in the debit and credit columns points out that some mistakes have been committed.
(vii) Tallying of trail balance is not a conclusive proof of accuracy of accounts.
LIMITATIONS OF TRAIL BALANCE
(i) The trail balance can be prepared only in those concerns where double entry system of book- keeping is adopted. This system is too costly.
(ii) A trail balance is not a conclusive proof of the arithmetical accuracy of the books of account. It the trail balance agrees, it does not mean that now there are absolutely no errors in books. On the other hand, some errors are not disclosed by the trail balance.
(iii) It the trail balance is wrong, the subsequent preparation of Trading, P&L Account and Balance Sheet will not reflect the true picture of the concern.
METHODS OF PREPARING TRAIL BALANCE
A trail balance refers to a list of the ledger balances as on a particular date. It can be prepared in the two manners. In this section we present the important methods of preparing Trial balance
Total method
According to this method, debit total and credit total of each account of ledger are recorded in the trail balance.
Balance Method
According to this method, only balance of each account of ledger is recorded in trail balance. Some accounts may have debit balance and the other may have credit balance. All these debit and credit balances are recorded in it. This method is widely used.
Note: Accounts of all assets, expenses, losses and drawings are debit balances. Accounts of incomes, gains, liabilities and capital are credit balances |
