All the businessmen after completion of posting from journal or subsidiary books to the ledger want to verify the accuracy of the posting. For this purpose, our statement is prepared wherein the balances of all the a/c in the ledger are incorporate. The statement so prepared is called trial balance. A/c showing debit balances are put on the debit side of the trial balance. And the a/c showing credit balances are put on the credit side. The reason for agreement of a trial balance is that under the double entry system, each transaction is recorded two times, once of the debit side of the a/c and
again on credit side of a/c.
The under mention points may be noted for preparing a trial balance.
- All the assets must have debit balance.
- All the liabilities must have credit balance.
- Capital a/c shows credit balance.
- Drawings a/c shows debit balance.
- Purchase a/c will always show debit balance. Sales a/c will show credit balance.
- All expenses and loses are debited.
- All incomes and gain are credit.
Advantages of Trial Balance
- To know the arithmetical accuracy-
If the debit side is equal to the credit side, it means that there is no arithmetic error in posting.
- Help in preparation of final a/c-
All the balances of a/c are given in the trial balance which helps in trading and profit and loss a/c and balance sheet.
- Competitive study of a/c-
The trader can compare the balance of different a/c with the balances in the previous years. He can take necessary steps to earn more profit by this comparison.
- Summary of ledger-
Trial balance is a summary of ledger a/c. It helps the trader in getting full in formation of each a/c without going through them in the ledger.
Errors revealed by trial balance
- Non-posting into the ledger
- Not recorded in the trial balance.
- Wrong totalling
- Wrong balancing
- Posting of wrong a/c
- Posting of wrong side