Note on Introduction and Objectives of Trial Balance

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Introduction

A business records all its financial transactions first of all in journal or subsidiary books. Hence, the journal is the first step of accounting. It posts the transactions from the journal to the ledger by opening up individual accounts. Hence, the ledger is the second step of accounting.

While recording the transactions in the journal or subsidiary books and posting them in a ledger, a number of errors can be committed. Before preparing final accounts, therefore, the journal or subsidiary books and the ledger accounts must be checked to confirm their arithmetical accuracy. A statement, which is prepared to check the arithmetical accuracy of the books of accounts, is called trail balance. Hence, the trial balance is the third step of accounting.

The fundamental principle of the double entry system is that the every debit amount must be equal to every credit amount or vice versa. This principle is applicable both in journal and ledger. Hence, the principle provides a check on the arithmetical accuracy of the journal and ledger through the means of the trail balance.

Meaning and Definition

A trial balance is a list of debit and credit balances of all the ledger accounts extracted on a given date. It is not an account rather only a statement. It is not a part of books of accounts maintained under double entry system. It is the statement of debit and credit balances of all the assets, liabilities, capital, incomes and expenses. It is prepared in a separate sheet of paper to verify the arithmetical accuracy of books of account. Following are the main definitions of the trial balance:

"Trail balance is the list of debit and credit balances, taken out from the ledger, it also includes the balances of cash and bank taken from the cash book," - R. N. Carter

"The statement prepared with the help of ledger balances at the end of financial year (or at any other date) to find out whether debit total agrees with credit total is called trail balance. " - R. Pickle

"Trail balance is a list of balances debit or credit standing in the books of a trade at any given date," - J. R. Batliboi

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Objectives

The main objectives of preparing the trial balance are as follows:

  1. To obtain summary information: The trial balance provides summary information of all the ledger accounts in one place. It presents the balances of all the assets, liabilities, capital, incomes and expenses relating to a particular date.
  2. To help in making composition and decision: The trial balance helps in comparing the balances of assets, liabilities, capital, incomes, and expenses between two different periods. Such comparison helps in making a proper judgment of different activities of the business and arriving at important decisions.
  3. To check arithmetical accuracy: The trial balance checks the arithmetical accuracy of the books of accounts. It checks whether the total of debit balances equals the total of credit balances or not. If the trial balances agree, it proves the arithmetical accuracy. If it does not agree, it includes the existence of errors in the books of accounts, which are to be located and rectified.
  4. To facilitate for preparing the final accounts: The trial balance serves the basis for preparing the final accounts. From the trial balance, the balances of incomes and expenses are placed on the trading and profit and loss accounts and the balances of assets, liabilities and capital are placed on the balance sheet.
  5. To help for locating and rectifying errors: The trial balance helps to locate the accounting errors at an early stage. It's disagreement is the signal for the existence of accounting errors in the books of accounts, which compels to locate and rectify them in future.
  6. To help in minimizing errors and frauds: The trial balance helps in minimizing the different types of accounting errors and frauds. If the errors and frauds are committed, the trial balance disagrees. Hence, it gives moral pressure to the accounting personnel to maintain books of accounts with great care and honesty.

  • Trail balance is the third step of accounting.
  • A trial balance is a list of debit and credit balances of all the ledger accounts extracted on a given date.
  • The fundamental principle of the double entry system is that the every debit amount must be equal to every credit amount or vice versa. 
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Very Short Questions

A trial balance is a statement of debit & credit balance of the ledger accounts which is prepared in order to prove the arithmetical accuracy of the books of account. It is prepared after the preparation of various personal, real & nominal accounts. It is also called the summary of assets, capitals, liabilities, expenses, income, etc. drawn from the ledger account.

According to R. N. Carter,“Trial balance is the list of debit and credit balances, taken out from the ledger; it also includes the balances of cash and bank taken from cash book.”

According toJ. R. Batliboi,“Trial balance is a list of balances debit or credit standing in the books of trader at any given date.”

From the above definitions, it is obvious that a trial balance is a list of debit and credit balances of all the ledger accounts extracted on a given date. It is not an account rather only a statement. It is not a part of books of accounts maintained under double entry system. It is the statement of debit and credit balances of all the assets, liabilities, capital, incomes and expenses. It is the prepared in a separate sheet of paper to verify the arithmetical accuracy of books of account.

A trial balance is prepared for following reasons: -

  1. To obtain summary information
    It provides summary information of all the ledger accounts in one place. It presents the balances of all the assets, liabilities, capital, incomes and expenses relating to a particular date.

  2. To help in making comparison and decision
    It helps in comparing the balances of assets, liabilities, capital, incomes, and expenses between two different periods. Such comparison helps in making proper judgment of different activities of the business and arriving at important decisions.

  3. To check arithmetical accuracy
    The trial balance checks an arithmetical accuracy of the books of accounts. It checks whether the total of debit balances equals to the total of credit balances or not. If the trial balance agrees, it proves the arithmetical accuracy. If it does not agree, it indicates the existence of errors in the books of accounts, which are to be located and rectified.

  4. To facilitate for preparing the final accounts
    It serves the basis for preparing the final accounts. From the trial balance, the balances of incomes and expenses are placed on the trading and profit and loss accounts and balances of assets, liabilities and capital are placed on the balance sheet.

  5. To help for locating and rectifying errors
    It helps to locate the accounting errors at early stage. Its disagreement is the signal for the existence of accounting errors in the books of accounts, which compels the accountant to locate and rectify them in time.

  6. To help in minimizing errors and frauds
    It helps in minimizing the different types of accounting errors and frauds. If the errors and frauds are committed, the trial balance disagrees. Hence, it gives moral pressure to the accounting personnel to maintain books of accounts with great care and honesty.

The following are the advantages of trial balance:

  1. It verifies the arithmetical accuracy of recording and posting of financial transactions.
  2. It facilitates for preparing final accounts.
  3. It helps in locating, preventing and rectifying errors and frauds.
  4. It helps in the internal audit by supplying complete, reliable and accurate accounting information.
  5. It proves the authenticity of the balance sheet prepared by the business on the given date.
  6. It presents the position of all the accounts in one place.

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  • The objective of preparing the trail balance is ______.

    all the options are correct


    to check arithmetical accuracy


    to obtain summary information


    to help in minimizing errors and frauds


  • "Trail balance is a list of balances debit or credit standing in the books of a trader at any given date." Who said this?

    A. N. Agrawala


    J. R. Batliboi


    R. N. Carter


    R. Pickle


  • The trail balance helps in minimizing the different types of accounting ______.

    frauds


    all the options are correct


    mistakes


    errors


  • The trial balance ______.

    provides a listing of every account in the chart of accounts.


    is used to prove that there are no errors in the journal or ledger.


    is a formal financial statement.


    provides a listing of the balance of each account in active use.


  • The trial balance serves the basis for preparing the ______.

    journal


    final accounts


    accounting equation


    ledger


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