WHAT IS JOURNAL & LEDGER?

TRIAL BALANCE

Meaning of Trial Balance: After posting the transactions in the accounts and balancing them, a statement is prepared to show separately the debit and credit balances. Such a statement is known as Trial Balance. The total of the debit side of Trial Balance must be equal to that of its credit side. This is based on the principle that in double entry system, for every debit there must be a corresponding credit. The agreement of Trial Balance indicates arithmetical accuracy of the accounting work. If the two sides do not agree, there is definitely some error or errors. It must be remembered that equalising the two sides of a Trial Balance is not the sole and conclusive proof of the complete correctness of accounting work.

Objectives of a Trial Balance

A Trial Balance is a list of accounts showing debit balances and credit balances. If the Trial Balance agrees it proves that:

(i) the accounts are arithmetically accurate;

(ii) both aspects of all the transactions have been recorded, and

(iii) both debit and credit entries are posted in the Ledger.

A Trial Balance facilitates the preparation of final accounts, i.e., the Trading Account, the Profit and Loss Account and the Balance Sheet.

Methods of Preparing a Trial Balance

There are two methods of preparing a Trial Balance:

1. Totals Method: In this method, the total of debit and credit sides of the Ledger accounts, excluding the closing balances are shown in the Trial Balance.

2. Balance Method: In this method, only the closing balances of the Ledger accounts are shown.

Trial Balance can be prepared on a loose sheet having five columns. A specimen follows:

TRIAL BALANCE

as at…

We illustration the above two methods by taking the accounts given on Page 25.

In the Books of…

TRIAL BALANCE (Totals Method)

as at 30th April, 2012

TRIAL BALANCE (Balance Method)

as at 30th April, 2012

Note: Trial Balance has been discussed in detail in a separate Post.