Some Important-to-Know Facts about Trial Balance Accounting

1
Some Important-to-Know Facts about Trial Balance
Accounting
Trial balance is a statement prepared by stating
the totals of debit and credit balances from
ledger accounts. Being one of the most important
statements and tools used in the double entry
system, it ensures the two sides of debit and
credit are equally balanced. This provides a
check on the accuracy of amounts entered in
different books like ledger and journal. Lets
see some of the important facts a professional
accountant needs to know regarding trial balance
accounting.
2
Objectives
Arithmetical Accuracy
As stated trial balance statement is used the
record the amounts of debit and credit sides and
ensure they are equal on both their corresponding
columns. If the amounts are matched, then it is
assumed that the recordings in financial
transactions are accurate. On the other hand, if
there is any discrepancy found then it can be
deduced that the amounts entered in the books are
incorrect.
3
Locating Accounting Errors
Extending the arithmetical objective in
accounting, a trial balance also helps you in
locating errors in the books such as journal and
ledger.
Summarize The Financial Statements
A business performs a large of transactions
throughout the year. But the raw transactions
does not portray the current state of the
business unless properly recorded and summarized.
A trial balance caters the business in this case
by summarizing the transactions from financial
statements like Balance Sheet, Income Statement,
Cash Flow Statement, etc.
4
Provide The Basis For Preparing Final Accounts
Final accounts shows the profit and loss of any
business and its overall financial condition at
the end of accounting period. These accounts are
prepared by using the debit and credits figures
from all the ledger accounts. In this way, the
presence of trial balance statement helps in
providing the needed figures for final accounts.
5
Methods Of Preparation
A trial balance statement can be prepared by the
following methods

1. Total Method

2. Balance Method
Under the total method, the totals of both the
debit and credit figures are taken from ledger
accounts.
Under the balance method, only the balances from
ledger accounts are taken.
6
3. Compound Method
A compound method is a combination of both the
above defined methods. Therefore, this method is
also known as total cum balance method.
Normally, the balance method is preferred in
creating trial balance statements. Under the
trial balance, the transactions are either
recorded in subsidiary or journal books. After
that posting is done in the ledger and balances
are concluded. Thus, the balance figures are used
to prepare statement with the help of balance
method.
7
Undetected Errors In Trial Balance

• Errors of Omission

If a transaction is not recorded in the original
books, then the transactions debit and credit
effects will be omitted and no change on trial
balance shall be seen.

• Errors Of Commission

Recording incorrect figures in original
accounting books and then posting the same in
ledgers.
8

• Compensating Errors

This states that effect of one error is
neutralized due to the effect of another error.

• Errors Of Principle

Whenever any expenditure or income is not
properly accommodated with revenue and capital,
the occurring mistake is called the error of
principle.
9
TB Works Software
Mail info_at_tbworkssoftware.com
Call 832-387-7816
Website www.tbworkssoftware.com