some important-to-know facts about trial balance accounting
TRANSCRIPT
Some Important-to-Know Facts about Trial
Balance AccountingTrial 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. Let’s see some of the important facts a
professional accountant needs to know regarding trial balance accounting.
ObjectivesArithmetical AccuracyAs 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.
Locating Accounting ErrorsExtending 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 StatementsA 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.
Provide The Basis For Preparing Final AccountsFinal 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.
Methods Of PreparationA trial balance statement can be prepared by the following methods:
1.Total MethodUnder the total method, the totals of both the debit and credit figures are taken from ledger accounts.
2. Balance MethodUnder the balance method, only the balances from ledger accounts are
taken.
3. Compound MethodA 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.
Undetected Errors In Trial Balance• Errors of OmissionIf a transaction is not recorded in the original books, then the transaction’s
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.
• 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.
