Meaning and Definition of Trial Balance
Trial balance is a list in which all the balances of the accounts of Ledger are showed to test the arithmetical accuracy of the posting in ledger. It is prepared after the end of a particular period – year, half year or quarter. Trial balance prepares a base for the preparation of final accounts. After the completion of trial balance, the financial accounts - P&L Account and Balance Sheet are prepared to disclose the overall results of the business after a period.
Objects and Functions of Trial Balance
The main objectives of preparing a trial balance are to check the arithmetical accuracy of all transactions. In every trial balance, the total of debit balances must agree with the total of credit balances. It is a proof of arithmetical accuracy of postings but it is not a conclusive evidence of correctness of the books of accounts. The other objects and functions of a trial balance are as under:
1. It serves as a summary of all accounts.
2. It helps in locating errors if any.
3. It acts as a base for the preparation of final accounts.
Methods of Preparation of Trial Balance
A trial balance is prepared by the following three methods:
1. Balance Method
2. Total Method
3. Balance and Total Method or Combined Method
Among the above methods the balance method is the most popular and statutory method to prepare the Trial Balance. The balances of all accounts are recorded using this manner. If an account has a debit balance in the ledger, this sum is recorded in the trial balance's debit side, and if it has a credit balance, it is put in the trial balance's credit side. If an account has no balance, which implies that its entire debit side equals total credit side, it is not reported in the Trial Balance. After recording the balances of all accounts in the Ledger, the sums on both sides are summed to ensure the ledger's mathematical correctness. If the debit side total corresponds with the credit side total, the books are at least arithmetically correct. However, the trial balance is not the sole proof of accuracy of the books of Ledger. There may be errors which are discussed later in this unit.
