Trail Balance

Meaning of Trial Balance

A trial balance is that statement which shows wither the balances or total amounts of debit items and credit items of all the ledgers. It is a statement of debit and credit totals or balances of the ledger account, which is prepared to check the arithmetical accuracy of the recorded transactions.

The fundamental principle of double entry system of accounting is that "for every debit there must be a corresponding credit for the same amount". Thus, when the balances of all ledger accounts are extracted and are written in a statement to see whether its total of debit equal to total of credit or not,then it is called Trial Balance. Trial Balance can be prepared as daily,weekly, monthly, quarterly, half-yearly or yearly as per the need of the organization.

"A trial balance is a statement of debit and credit totals, or balances extracted from the ledger with a view to test the arithmetic accuracy of the books".- C.L. Chaturvedi and L.N. Agrawal

Features of the Trial Balance

The following are the features or characteristics of the trial balance are listed as bellows:

• Statement of Ledger Accounts: It shows the list of all the ledger accounts in generally one page.
  

• Balances of list of Ledgers: It shows the balances of ledger accounts either in balance or total form.
  

• Proof of Arithmetic Accuracy: It shows that total debit balance is equal to total credit balance of the all the ledger accounts.
  

• Prepared at the end of Year: It prepares generally at the end of the years but sometimes quarterly or monthly too.
  

Objectives of the Trial Balance

The following are the objectives of the trial balance are listed as bellows:

• To check arithmetic accuracy: It helps to check whether total debit and total credit is equal or not.
  

• To help in locating errors: It helps to identify the various types of accounting error like error of omission, error of principle etc.
  

• To provide summary of ledger: It collects all the ledgers into to one place and provide the details of the accounts.
  

• To help in preparation of final accounts: It is the initial stage of preparing final account that starts with unadjusted trial balance or simply trial balance.
  

Types of Trial Balance

The trial balance has two types described as bellows:

1. Unadjusted Trial Balance: When a trial balance is prepared before considering these year-end adjustments then that is called unadjusted trial balance. It is the list of all the ledger account prepared in the leader book. It is the process of bringing all the leader account into one place. It is an initial stage to go ahead for preparing the adjusted trial balance.
   

2. Adjusted Trial Balance: While closing the accounts at the end of accounting year, a large number of transactions are necessary to consider which are called adjustment. But if trial balance is prepared after considering year-end adjustments then is called adjusted trial balance.  It is necessary to know correct balance of the accounts.
   

 

*Adjustments means the transactions that do not appear in a ledger account are to be noted as adjustments. It is also known as accounting or year-ended adjustments. 

*Process of Trial Balance: The trial balance is the third steps of accounting cycle starts with journal entries and end with preparing financial statements.

Methods of Trial Balance

The trial balance can be prepared under the following two methods.

1. Total Method: Under this method, totals of debit and credit of each ledger account are incorporated in trial balance. Generally, this method is not so used in practice.

2. Balance Method: Under this method, when the trial balance is prepared on the basis of given ledger balances, then it is called 'balance method'. Generally, this method is so used in practice.
   

Format of Trial Balance

 

Note-1: If there is not mentioned the word 'unadjusted' or 'adjusted' with the word 'trial balance', then it should be considered as unadjusted trial balance. This is temporary trial balance of the company.

Note-2: The final trial balance of the company is adjusted trial balance which is permanent in nature.

Conclusion

A trial balance is that statement which shows wither the balances or total amounts of debit items and credit items of all the ledgers. When the balances of all ledger accounts are extracted and are written in a statement to see whether its total of debit equal to total of credit or not, then it is called Trial Balance. Basically, there are two methods of trial balance include total and balance method. Generally, balance method is so used in practice. It generally prepare at the end of the financial year of the company.

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