Trial Balance Intro
A Trial Balance is a two-column schedule listing the titles and balances of all the accounts in the order in which they appear in the ledger. The debit balances are listed in the left-hand column and the credit balances in the right-hand column. In the case of General Ledger, the totals of the two columns should agree.
We, now, know the fundamental principle of double entry system of accounting where for every debit, there must be a corresponding credit. Therefore, for every debit or a series of debits given to one or several accounts, there is a corresponding credit or a series of credits of an equal amount given to some other account or accounts and vice-versa.
Hence, according to this principle, the sum total of debit amounts must equal the credit amounts of the ledger at any date. If the various accounts in the ledger are balanced, then the total of all debit balances must be equal to the total of all credit balances. If the same is not true then the books of accounts are arithmetically inaccurate.
It is, therefore, at the end of the financial year or at any other time, the balances of all the ledger accounts are extracted and are recorded in a statement known as Trial Balance and finally totaled up to see whether the total of debit balances is equal to the total of credit balances.
A Trial Balance may thus be defined as a statement of debit and credit totals or balances extracted from the various accounts in the ledger books with a view to testing the arithmetical accuracy of the books. The agreement of the Trial Balance reveals that both the aspects of each transaction have been recorded and that the books are arithmetically accurate.
If both the sides of Trial Balance do not agree to each other, it shows that there are some errors, which must be detected and rectified if the correct final accounts are to be prepared. Thus, Trial Balance forms a connecting link between the ledger accounts and the final accounts.
We, now, know the fundamental principle of double entry system of accounting where for every debit, there must be a corresponding credit. Therefore, for every debit or a series of debits given to one or several accounts, there is a corresponding credit or a series of credits of an equal amount given to some other account or accounts and vice-versa.
Hence, according to this principle, the sum total of debit amounts must equal the credit amounts of the ledger at any date. If the various accounts in the ledger are balanced, then the total of all debit balances must be equal to the total of all credit balances. If the same is not true then the books of accounts are arithmetically inaccurate.
It is, therefore, at the end of the financial year or at any other time, the balances of all the ledger accounts are extracted and are recorded in a statement known as Trial Balance and finally totaled up to see whether the total of debit balances is equal to the total of credit balances.
A Trial Balance may thus be defined as a statement of debit and credit totals or balances extracted from the various accounts in the ledger books with a view to testing the arithmetical accuracy of the books. The agreement of the Trial Balance reveals that both the aspects of each transaction have been recorded and that the books are arithmetically accurate.
If both the sides of Trial Balance do not agree to each other, it shows that there are some errors, which must be detected and rectified if the correct final accounts are to be prepared. Thus, Trial Balance forms a connecting link between the ledger accounts and the final accounts.
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