What is a Trial Balance ?
A trial balance may be defined as a statement of debit and credit balances extracted from the ledger with a view to test the arithmetical accuracy of the books. It contains all kinds of accounts, irrespective of their classifications, such as assets liabilities, income-expenses etc.
It is basically a statement that exhibits the total of the debit and credit balances recorded in various accounts of ledger which is further used for preparing the final accounting statements of the business.
It is usually prepared at the end of the accounting period.
HOW TO PREPARE TRIAL BALANCE ?
Business transactions are first recorded in the journal and thereafter these are posted in the ledger under different heads of accounts.
At the end of a particular accounting period, a trial balance is prepared in a separate sheet of prescribed form recording debit ledger balance, in debit column and credit ledger balances in credit money column.
Apart from ledger balances, the cash and bank balances are also entered in the trial balance .
The steps involved in preparing trial balance from ledger balances are as below:-
1. Calculate the Balances of Each of the Ledger Accounts :-
Business transactions are first recorded in the journal book in the form of journal entries which are then further posted in the various ledger accounts involved.
Record debit or credit balances in the Trial Balance :-
The debit or credit balances in various ledger accounts are then further recorded in the trial balance in the debit or credit columns accordingly.
3. Calculate Total of The Debit & Credit Columns :-
After that the total of the debit and credit columns of the trial balance is calculated .
4. Check if Debit is Equal To Credit :-
The total of debit column of the trial balance should match the total of the credit column in order to check the arithmetical accuracy of ledger accounts.
If the trial balance do not match it indicates that there has been some error while recording the transactions in ledger or trial balance.
Thus, the trial balance is a statement of debit and credit balances that are extracted from ledger accounts on a specific date.
The final balance from the ledger needs to be properly placed on the debit and credit column while preparing the trial balance, to make sure that the accounting process is correct.