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Trial Balance

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A trial balance is a statement where the balance of all ledgers is compiled into the debit and credit side of the accounts. The summation of the debit and credit sides should match. It is usually prepared at the end of every reporting period. The general purpose of preparing a trial balance is to ensure that the entries in a company’s books are arithmetically correct. Trial Balance is the basis for the preparation of final accounts. It is prepared before preparing the final accounts of the Companies.

Features of Trial Balance

a) Trial balance lists down all the balances of ledgers, including the cash book.
b) A trial balance can be prepared either weekly, monthly, quarterly, or at year-end.
c) It helps in reviewing the arithmetical accuracy of the books.
d) It is the road between the Profit and Loss Account and the Balance sheet.
e) It does not provide conclusive proof of the absence of error, as errors of principle will still exist.

Important Principle used in the Preparation of Trial Balance

a. All the nominal, personal, and real accounts are considered in the preparation of the Trial balance.
b. If a ledger shows a NIL balance, it is not considered in the preparation of the trial balance.
c. The purchase ledger always carries a debit balance and appears on the debit side of the trial balance, whereas the revenue account always carries a credit balance and appears on the credit side of the balance sheet. 
d. Sales return and purchase return will appear as separate line items in the trial balance or be shown as reduced from the main purchase and sales ledger, respectively.
e. The opening stock figure comes from the Profit and loss account since it is not available as a closing balance of stock in the previous year’s trial balance.
f. All the expenses have a debit balance, so they appear with a debit balance in the trial balance, whereas all incomes and gains have a Credit balance, so they appear with a credit balance in the trial balance.
g. The asset and liability must be equal at the end.

Errors of Trial Balance

A trial balance only checks the sum of debits against the sum of credits, that is why it does not guarantee that there will be no errors. These are some of the general errors that are not detected by the trial balance:

a) An error of original entry: This is an error where the original entry has been wrongly mentioned. That is both the debit and credit sides will reflect the wrong amount. For example, if a purchase invoice for Rs. 221 is entered as Rs. 212, this will result in an incorrect debit entry (to purchases), and an incorrect credit entry (to the relevant creditor account), both for Rs.9 less, so the total of both columns will be Rs. 9 less, and will thus balance.

b) An error of omission: This is an error where a transaction is completely omitted from the accounting records. As the debits and credits for the transaction would always balance, the omission of any transaction will never be detected.

c) An error of reversal: This is an error occurred when entries are made to the correct amount, but with debits instead of credits, and vice versa. For example, if a cash sale for Rs.1,000 is debited to the Sales account, and credited to the Cash account. Such an error will not affect the totals.

d) An error of commission: This is an error when the entries are made for the correct amount and at the appropriate side (debit or credit), but one or more entries are made to the wrong account. For example, if printing costs are incorrectly debited to the courier account (both expense accounts). This will not affect the totals.

e) An error of principle: This is an error where the entries are made for the correct amount and at the appropriate side (i.e., debit or credit), but the wrong type of account is used. For example, if printing costs (an expense account), are debited to stock (an asset account). This will not affect the totals.
 


Last Updated : 08 Sep, 2022
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