Trial Balance




Watch this video to know the process of preparing Trial Balance

What is Trial Balance?

A Trial Balance is a list of Ledger Accounts with their balances at a given time.

When is Trial Balance prepared?

Companies prepare a Trial Balance at the end of an accounting period.


Usefulness of Trial Balance:

The trial balance proves the mathematical equality of debits and credits after Posting.

A trial balance may also uncover errors in journalizing and posting.

A trial balance is useful in the preparation of financial statements.


Limitations of a Trial Balance:

The trial balance does not prove that the company has recorded all transactions or that the ledger is correct.

For example, the trial balance may balance even when:

1. a transaction is not journalized,

2. a correct journal entry is not posted,

3. a journal entry is posted twice,

4. incorrect accounts are used in journalizing or posting, or

5. offsetting errors are made in recording the amount of a transaction.




What do you do if you are facedwith a trial balance that does not balance?

First determine the amount of the differencebetween the two columns of the trial balance. After this amount is known, the following steps are often helpful:

1. If the error is $1, $10, $100, or $1,000, re-add the trial balance columns and recompute the account balances.

2. If the error is divisible by 2, scan the trial balance to see whether a balance equal to half the error has been entered in the wrong column.

3. If the error is divisible by 9, retrace the account balances on the trial balance to see whether they are incorrectly copied from the ledger. For example, if a balance was $12 and it was listed as $21, a $9 error has been made. Reversing the order of numbers is called a transposition error.

4. If the error is not divisible by 2 or 9, scan the ledger to see whether an account balance in the amount of the error has been omitted from the trial balance, and scan the journal to see whether a posting of that amount has been omitted.

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