What is a Trial Balance?
A trial balance is a worksheet record book that reflects the debit and credit balance of all the registered accounts. This worksheet statement is used to prepare the final account report of the company. Trial balance also determines the accuracy of the account. However, it doesn’t ensure that the account is error-free but surely gives mathematical precision.
Preparation of Trial Balance:
Before preparing a trial balance, there are two steps to follow. First, the transaction of the accounts are registered in the journal and then in the general ledger. And the second step is preparing a trial balance.
Given below are the steps to prepare a trial balance:
- To prepare a trial balance it is required to close all the ledger account, cash book and bank book first. Ledger account should be balanced, that means the entries of both debit and credit should be equal
- Three column worksheet is prepared which includes account name, debit (Dr.) and credit (Cr.) details
- The columns should be filled with all the appropriate details
- Both the debit and credit columns are evaluated. Ideally, an error-free trail balance means both the columns amount matches
- Once both the amount match, the trial balance sheet is closed, if any errors are found, then it has to be rectified. Few reasons why errors occur are listed below:
- Mistake while transferring balance amount to trial balance
- Error while balancing an account
- Sometimes, a wrong amount is posted in the account
- When an entry is made in the wrong column, debit instead of credit and vice-versa
- Mistake made in the casting of the journal
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.