Accountancy: Trial Balance and Accounting Errors: Objectives, Process and Limitations of Trial Balance

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A trial balance is a schedule or list of debit and credit balances extracted from various accounts in the ledger including cash and bank balances from cash book. Since every transaction has a dual effect i.e. every debit has a corresponding credit and vice versa, the total of the debit balances and credit balances extracted from the ledger must tally. Thus, at the end of the accounting period or at the end of each month, the balances of the ledger accounts are extracted, and trial balance is prepared to test as to whether the total debits are equal to total credits or not.

Objective of Trial Balance

  • To check the arithmetical accuracy of the books of accounts.

  • To prepare final accounts of the organisation.

  • To make a comparative study of each and every account.

  • To finalize the financial budget

Methods of Preparing Trial Balance

  • Totals Method: In this method, the totals of debit and credit sides of the ledger accounts are shown in the trial balance. The sum totals of debit and credit columns of the trial balance must be equal. This is less popular method.

  • Balances Method: In this method, the balances of ledger accounts are taken to respective debit and credit columns of the trial balance and then grand totals are taken out. The total of balances in the debit column must be equal to the total balances in the credit column of the trial balance.

Methods of Trial Balance

Methods of Trial Balance

Process of Trial Balance

Process of Trial Balance

Process of Trial Balance

Limitations of Trial Balance

  • The agreement of trial balance is not a conclusive proof of the accuracy of accounts.

  • Trial balance gives only condensed information of each account.

  • Profit or loss position cannot be traced out from the trial balance.

  • Proper preparation of trial balance leads to preparation of final accounts.

  • Mostly double entry system abide enterprises should adopt trial balance to check the arithmetical accuracy.

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