Rules for preparing trial balance if ledger balances given only
Trial balance is a statement which is prepared with the debit and credit balances of ledger accounts to test the arithmetical accuracy of the books.
In the first phase of the accounting process, the transactions are recorded in the journal or subsidiary books as and when they occur.
In the second phase, the debit and credit items of journal are transferred to classify accounts in the ledger.
During these two phases, the concerned personnel may commit some clerical errors, and thus it is plausible to verify whether all the recordings in the books of accounts are correctly made or not.
Hence, in the third phase of accounting process, a statement with debit and credit totals or balances of all the ledger accounts is prepared on a particular date to check the arithmetical accuracy of accounting records.
such a statement is called a trial balance.
Trial balance follows the fundamental principles of Double Entry System.
The principles state that the amount written on the debit sides of various accounts is always equal to the amount entered on the credit sides of other accounts and vice-versa.
Hence, the total of the debit sides must be equal to the total of the credit sides. Also, the total of the debit balances will be equal to the total of the credit balances.
Once this agreement is done, then there is reasonable confidence that the accounting work is free from clerical errors, through is not proof of cent per cent accuracy because some errors of principle and compensating errors may still remain.
It can be prepared at any time say daily, weekly, monthly, quarterly, half-yearly, yearly as per the need but it is preferable to prepare at the end of the accounting year.
In conclusion, trial balance can be defined as a statement prepared on a particular date by taking the debit and credit totals or balances of ledger accounts to ensure the arithmetical accuracy of all the recordings in the books of accounts.
Objectives of preparing Trial Balance
a) To ascertain the arithmetical accuracy
Trial balance is prepared under a double-entry system. A fundamental principle of this system is that for every debit amount there is an equal credit amount or vice-versa.
This provides a check on arithmetical accuracy. Thus, if debit and credit totals of trial balance are equal to each other, it ensures that accounting works have been carried out with arithmetical accuracy.
b) To help in locating the errors
If the total of debit and credit of trial balance does not match, it indicates that some errors may have been committed during the accounting process.
c) To provide summary information
Trial balance is a list of debit and credit balances of various ledger accounts. It provides summary information of all the ledger accounts in the form of statement.
d) To facilitate the preparation of financial statements
Before the preparation of financial statements, the trial balance is prepared with the ledger balances of revenues, incomes, expenses, assets, liabilities and capital.
lf debit and credit of trial balance are tallied, it is supposed that the financial statements are prepared on arithmetically accurate information contained in trial balance.
e) To facilitate in auditing
It helps the auditors to perform the auditing functions efficiently and effectively by availing the arithmetically accurate information concerning various accounts.
During examination of the books of accounts and comparison of the facts and figures of financial statements, auditors are greatly facilitated by trial balance.
Importance / Advantages / Uses of Trial Balance
• It provides the summary information of all the ledger accounts in the form of a statement.
• It ensures that the accounting records have been maintained with full of arithmetical accuracy.
• It facilitates for the preparation of financial statements by producing the required information contained in it.
• It helps in locating the errors committed by the accounting personnel.
• It helps to minimize the clerical errors and even frauds by making the accounting personnel more conscious towards performing accounting functions.
• It helps to prepare more authentic financial statements because tallied trial balance ensures arithmetically accurate information of books of accounts.
• It helps in performing auditing functions by providing accurate and summary information of all the ledger accounts.
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