In this post, we will learn about Trial Balance.
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Definition of Trial Balance
Trial Balance is a statement that lists all the general ledger account balances of a company at a particular date. It is a tool used in accounting to verify that the total debits equal the total credits in the company’s financial records. The trial balance helps to ensure the accuracy of the accounting records and assists in the preparation of financial statements. If the total debits and credits are not equal, it indicates that there is an error or omission in the accounting records that needs to be identified and corrected.
Features of Trial Balance
- It is not an account.
- It is a statement containing all balances of ledger account.
- The total of the debit side and credit side must be equal and thus it proves that the ledger accounts are arithmetically accurate.
- It is not recorded in any book of account. The trial balance is prepared in a separate sheet or paper.
Objectives of Trial Balance
The main objectives of a trial balance are:
- To verify the accuracy of the accounting records: The primary objective of preparing a trial balance is to ensure that the total of all debit balances should be equal to the total of all credit balances in the ledger accounts, thereby ensuring that the accounting records are accurate and free from errors.
- To identify and locate errors: A trial balance helps to identify any errors that may have occurred during the recording process. Any discrepancies in the debit and credit columns of the trial balance can help the accountant locate the errors and rectify them before preparing the final accounts.
- To facilitate the preparation of financial statements: A trial balance serves as a basis for the preparation of financial statements such as the balance sheet, income statement, and cash flow statement. It provides an overview of the financial transactions that have taken place during a specific period and helps to organize the data required for the preparation of these statements.
- To assist in decision-making: The trial balance provides a summary of the financial transactions that have taken place during a specific period, which can be useful in making informed business decisions. By reviewing the trial balance, managers can assess the financial health of the company and make informed decisions about future investments, expansion plans, and resource allocation.
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FAQs on Trial Balance
What is trial balance?
The features of the trial balance are given below:
Trial Balance is a statement that lists all the general ledger account balances of a company at a particular date. It is a tool used in accounting to verify that the total debits equal the total credits in the company’s financial records. The trial balance helps to ensure the accuracy of the accounting records and assists in the preparation of financial statements. If the total debits and credits are not equal, it indicates that there is an error or omission in the accounting records that needs to be identified and corrected.
What are the features of trial balance?
1. It is not an account.
2. It is a statement containing all balances of ledger account.
3. The total of the debit side and credit side must be equal and thus it proves that the ledger accounts are arithmetically accurate.
4. It is not recorded in any book of account. The trial balance is prepared in a separate sheet or paper.