Financial AccountingAccount Trial Balance

Account Trial Balance

Account Trial Balance

At the end of each accounting period, all the Ledger balances from the books of accounts are listed in the form of a statement called Account Trial Balance. In other words, an Account Trial Balance is a statement of Ledger balances at a particular point in time.

Trial Balance is usually presented by enlisting the balance of all ledgers into a single statement. 

Another way of presenting the Account Trial Balance is to enlist the total of the debit and credit column against the name of each ledger in a single statement and show the difference of Debit and Credit as a balance in the third column. In this method, the debit balance is presented as positive whereas the credit balance is presented as a negative balance. 

Trial Balance can be drawn at any time in the year, however, it is customary to prepare a trial balance before the preparation of Financial Statements e.g. Balance sheet and Income Statement. 

Principles from Accounting Equation and double-entry require that for every debit entry there is a credit entry. This principle implies that the total of all debits and credit in the Trial Balance shall be equal. 

However, in a business with a large number of daily transactions, there are chances that some error may happen and both sides of the trial balance may not be equal. 

Therefore, a temporary suspense account is created with the amount of difference between total debit and credit balances. Opening balance is entered on the side which is the lessor. 

After opening the suspense account and balancing the trial balance, further investigations are made to identify and rectify the errors, which resulted in unbalancing the trial balance. Each discovery of error is adjusted in a suspense account. This process is repeated till the balance of the suspense account becomes ZERO and both the columns of the trial balance become equal.

Let us know if you have anything to ask?

The objective of Preparing Account Trial Balance

  1. Arithmetical Accuracy of accounting Entries

Drawing up a trial balance reduces the risk of the arithmetic inaccuracy of financial transactions. It helps to ensure that every debit entry has an equal corresponding credit entry.

As underlying principles behind Accounting Equation and double-entry accounting requires that for every debit entry there shall be credit entries with an equal amount. 

The total of all debits and credit on a trial balance is compared and any differences are investigated, thus preparation of trial balance encourages to ensure that all debit and credit entries are complete and arithmetically accurate. 

  1. Summarising Ledger

Preparing trial balance requires enlisting summarized balances of all the ledgers. This provides a snapshot of all the business ledgers at a glance. 

  1. Basis of Financial Statements 

A trial balance is drawn up before the preparation of Financial Statements. Trial Balance is usually prepared in a way that is all the nominal ledger which eventually becomes part of the Profit and Loss statement, are presented together. 

Similarly, balances from all real accounts shall be grouped together in the trial balance. This will make it easy to prepare a balance sheet. 

Let us know if you have anything to ask?

Leave a Reply

Your email address will not be published. Required fields are marked *

Organically grow the holistic world view of disruptive innovation via empowerment.
OUR LOCATIONSWhere to find us
GET IN TOUCHSocial links
Taking seamless key performance indicators offline to maximise the long tail.

Copyright by Excel Accountancy. All rights reserved.

Copyright by BoldThemes. All rights reserved.