What is a Trial Balance?
Trial balance is a worksheet in bookkeeping that contains ledger balance compiled in sections of debit and credit. This worksheet is used for creating the balance sheet. Preparation of trial balance is to ensure mathematical correctness of the transactions recorded.
But, a trial balance won’t be able to guarantee that accounts are free from any error.
Preparation of Trial Balance
Trial balance is prepared after the transactions are first recorded in the journal and then subsequently posted in the general ledger.
Here are the steps involved in preparing the trial balance
- For preparing a trial balance, it is required to close all the ledger accounts, cash book and bank book first. Ledger account should be balanced, that means the entries of both debit and credit should be equal
- The next step is the creation of a worksheet having three columns which are having account name, debit (Dr.) and credit (Cr.) details
- The columns should be filled with all the appropriate details
- Debit and credit columns are evaluated. Ideally, an error-free trial balance means the amount in both the columns match.
- If both the amounts match, then the trial balance sheet is closed, if any errors are found, then it has to be rectified. Few reasons for the occurrence of error are listed below:
- A mistake made while transferring balance amount to trial balance
- Error arising during balancing of the account
- Posting of the wrong amount in the ledger
- Wrong entry is made in the wrong column, i.e. debit entry posted instead of entry for credit and vice-versa
- Mistakes made during the journal casting
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Rules for Preparing Trial Balance:
Whenever preparing for balance sheet one should keep in mind the following things:
- The debit column of the trial balance is incorporated with balances of the accounts such as:
- Expense account
- Drawing account
- Cash balance
- Bank balance
- Any losses
2. The credit column of the trial balance is filled with balances such as:
- Income accounts
- Capital account
The above mentioned is the concept, that is elucidated in detail about ‘How to prepare Trial Balance?’ for the Commerce students. To know more, stay tuned to BYJU’S.