The first step towards the preparation of financial statement is the trial balance. Trial balance is a worksheet that is prepared to record the balances of all the ledgers in a tabular form so that the records are classified by the debit and credit columns.
Usually, trial balances are prepared in a periodic manner. It is preferable to create a trial balance after the end of accounting periods. This helps in the preparation of financial statements. The two main columns of the trial balance are the debit column that stores all the debit balances and the credit column that stores all the credit balances. With trial balance homework answers you can get a well-analyzed manual for detailed study!
The debit column usually consists of balances resulting from expense accounts, assets, etc. On the other hand, the credit column consists of the capital, income, and liabilities. The trial balance is a way of ensuring that the bookkeeping system of any firm is numerically accurate. All entries of a trial balance are considered correct only if the sum of all debit balances equals to that of all credit balances.
What is the main purpose of trial balance?
What students fail to understand is the main purpose of creating a trial balance. Understanding this serves the purpose of clearing the concept on the topic of discussion. Here I will try to state the main purpose of trial balance in a brief and simple manner. The following are the main purposes of maintaining a trial balance:
- It is the first step for the preparation of accounting statements. It is widely sued by accountants in creating account statements as it holds records of all the debit and credit balances.
- We all know about the double entry accounting concept. The trial balance makes sure that for every credit entry there is a corresponding debit entry. If the sum of all debit balances does not match with the sum of all credit balances, then we know there is some error in the book keeping.
- The trial balance will make sure that the account balances are copied accurately from the accounting ledgers.
- The trial balance detects any kind of error that might be present in the account ledgers.
What does a trial balance consist of?
The trial balance is a written in a tabular form. At the top, name of an entity and the accounting period for which the balance has been prepared are usually mentioned. The table consists of the name of the ledger from which the balances, be it debit or credit, recopied. The debit column is usually on the left side which consists of the balances related to expenses and assets while the credit column on the right usually consists of liabilities, income, and equity, etc. The total sum of the balances is written at the bottom of the respective columns.
Although trial balance has a lot of purpose in the financial field, there are certain limitations that must also be accounted for. Although trial balance checks whether the credit and debit balance match, it does not fully ensure that the trial balance is completely error free. Some mistakes while extracting the balances may lead to a matching debit and credit balance, and one must not rest assured that the trial balance always detects all kinds of error. It might sometimes choose to ignore errors and hence mislead the accountant.
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