What About Trial Balance
“Each transaction has two aspects one is debited and other is credited. If a statement is prepared and the totals of debits and credits of all accounts of ledger are recorded then the totals of debit and credit sides will be equal. This statement is called ‘Trial Balance”.
– B. G. Bickery
At the end of accounting year closing the accounts, their balances are taken out. This balance is either debit balance or credit balance. Third condition may be this also that both the sides of account are equal. In such condition there will be neither debit balance nor credit balance. As accounts are based on double entry system, so in each condition the total of debit balance of accounts will always be equal to the total of credit balance of accounts. It is a natural practice of double entry system. Due to this the concept of Trial balance originated. In it on the end of every accounting year a balance sheet is made from accounts of ledger, which has two columns of amount-one for the amount of debit balance and other for the amount of credit balance. The total of both the columns will be equal. If the total is not equal then it is a clear evidence that some mistake has been done while accounting.
Definitions of Trial Balance
(1) According to Carter- Under double entry system the total of debit side should be equal to credit side in ledger book. Trial Balance is a system to check it. Trial balance is the collection of accounts in brief which is used for preparing trading account, profit and loss account and balance sheet.
(2) According to Spicer and Peglor- If the posting of accounts is completed on a particular date or the double entry of each transaction is completed then the list of accounts balances is prepared. This list is called Trial Balance.
Proper definition- After opening the accounts of all concerned transactions in ledger, according to the principles of Double entry System and taking out the balances by adding their credit and debit sides, to check the numeral correctness of accounts, a special statement is prepared, which is called “Trial Balance.”
Objective of Making Trial Balance
There are following purposes of making Trial Balance-
(1) Arithmetical Accuracy- It is a natural quality of
double entry system that for every debit amount there is an equal credit amount and for every credit amount there is an equal debit amount. In this condition the total of all accounts of debit side will always be equal to the total of all the accounts of credit side. If it is not so then it is a clear evidence that some arithmetical mistake has been done in accounts while accounting.
(ii) Summary of accounts- Ledger gives a detailed
information of every account, but to make final accounts it is necessary to know whole conditions of the whole year in short. With the help of Trial Balance we can easily get the knowledge of balance of every account of ledger.
(iii) Base of final accounts- One of the purposes of making trial balance is this also that the next important step of accounting. Final accounts, is completed after making trial Balance, through which the whole financial condition and the position of profit and loss of business is found out. Trial Balance provides important information to make final accounts.
(iv) Mutual comparison- Important results can be taken out by comparing the amounts of last year to the amounts of this year. By this comparison this is found out that what are the changes in any particular item.
Subject-Matter of Trial Balance
(i) Heading-On the top of Trial Balance name of that business institution should always be written whose trial balance is made. The date, on which accounts of that business institution are closed, should also be written under it.
(ii) Columns-Generally there are four columns in Trial Balance. First column is made for writing the names of accounts opened in ledger. The second column is for writing ledger Folio of ledger with the concerned column. In third column debit amount and in fourth column credit amounts are written.
(iii) Totals- When all the amount of subsidiary books and the accounts opened in-ledger is written in concerned column, then it is added. This addition is necessary because on being equal of this total there will be a partial satisfaction of this thing that there is not any numerical incorrectness in accounts. Though there may be some errors in spite of equal total.