some important objectives of accounting of trial balance
TRANSCRIPT
Some Important Objectives of Accounting of Trial
Balance
Whenever you solve a problem in mathematics it is important to check and verify if it
has been correctly solved. You may opt for any of the several ways available of
verifying the solution. Same approach goes for accounting of trial balance where you
encounter a number of figures to deal with at the same time. A professional
accountant needs to make sure that the ledgers he or she has prepared are correct in
terms of balancing both debit and credit, remaining amount, etc. To check this
accuracy of figures, a statement called trial balance is prepared. Let’s cover some
needful objectives about accounting of trial balance.
Check Arithmetical Accuracy
Arithmetical accuracy means to validate if actual figures or
amounts are entered in the correct side of correct account
while posting transactions from various accounting books
like Purchase Book, Sales Book, Cash Book, etc. Not only
the correct balances of ledger accounts but also the totals
of special purpose books are verified.
Helps In Preparing Financial Statements
Every business prepares financial statements like balance sheet, Cash flow statement, etc. at the end of each accounting year. The balances in ledger accounts are available in trial balance statement and these figures are then used to prepare these financial statements
and conduct their analysis.
Helps Is Catching Errors
If totals of two columns of the trial balance statement equals that shows the arithmetical accuracy in ledgers. However, if values of both columns do not tally that means there is one or more errors in some of the ledger accounts. This prompts accountants to locate critical errors.
Helps In Comparative Analysis
The balances of ledger account with corresponding balances of previous years accounts helps the management in taking critical decisions regarding expenses, sales, revenues and profits, production costs, etc. You can also figure out the trend of above stated business components. These figures can be taken from the trial balance statements of two years.
Helps In Necessary Adjustments
When preparing financial statements adjustments like prepaid and outstanding
expenses, closing stock, service revenues, account receivables, etc. are to be
cleared is when trial balance comes in. It helps in finding the items requiring
adjustments relevant to be added in financial statements. Trial balance is ideally
prepared at the end of the business year, however, the above entries can occur
anytime during the year requiring to be adjusted in financial statements.
Helps In Audit Reports
Balancing all debit figures with credit ones is one of the most critical tasks of any accountant. Trial balance assists auditors to make decisions whether all entries have been recorded in the original books of accounts. Auditors are able to further comment if the accounting process of business is effective and efficient enough or not.
Decisions Regarding Financial Budget
Comparisons of two or three year trial balance statements helps financial analysts to create
trends regarding the business growth and performance. Also financial budget can be
decided for next and upcoming years that assists management decisions at the top level.
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