Trial Balance

Share Accounting Article below:

Definition:

As the business grows, the number of entries increases and it is therefore rightly desired by the businesses to carry out periodic checks on the accuracy of these entries. This becomes more important before preparing the financial statements. This is done by preparing a schedule of balances of all accounts, known as trial balance.

Preparation Method/Format of Trial Balance:

While preparing trial balance, the accounts having debit balances are shown on the the debit side, whereas accounts having credit balances are shown on the credit side. However, the accounts with nil balances need not to be shown in the trial balance.

If all the transactions were correctly recorded in the ledger accounts and balances of these accounts have been struck correctly, the aggregate of the debit balances in the trial balance should equal the sum of the credit balances. The trial balance therefore checks the arithmetical accuracy of the books of accounts. Accounts (which may be in any number) appearing on the debit side of the trial balance are usually assets and expenses, but will also include drawings and return inwards. Similarly the accounts shown on credit side are mainly incomes (revenue), liabilities, capital and may also include return outwards.

A trial balance must be properly headed up with the name of organization and the date at which it is prepared.

A trial balance may be prepared on the basis of accounts balances.