Trial Balance |Lecture 10 | ACCOUNTS ASSISTANT EXAM - FINANCE DEPARTMENT | JKSSB | CA MOHD LATEEF

Trial Balance |Lecture 10 | ACCOUNTS ASSISTANT EXAM - FINANCE DEPARTMENT | JKSSB | CA MOHD LATEEF Website :- www.eactclasses.com Link of Book:- https://drive.google.com/file/d/10iXL... TRIAL BALANCE In the earlier chapters, we have learnt about the basic principles of accounting that for every debit there will be an equal credit. It implies that the total of debits will be equal to total of credits. if the sum of all debits equals the sum of all credits, it is presumed that the posting to the ledger in terms of debit and credit amounts is accurate. The trial balance is a tool for verifying the correctness of debit and credit amounts. It is an arithmetical check under the double entry system which verifies that both aspects of every transaction have been recorded accurately. Preparation of Trial balance is the third phase in Accounting Process. After posting the accounts in the ledger, a statement is prepared to show separately the debit and credit balances. Such a statement is known as Trial Balance. In other words, A trial balance is a statement showing the balances of all the accounts in the ledger with a view to verify the arithmetical accuracy of posting into the ledger accounts. Trial balance is an important statement in the accounting process as it shows the final position of all accounts and helps in preparing the final statements (i.e., Profit & Loss account and Balance sheet). It is normally prepared at the end of an accounting year. However, an organisation may prepare a trial balance at the end of any chosen period, which may be monthly, quarterly, half yearly or annually depending upon its requirements. In order to prepare a trial balance following steps are taken: • Ascertain the balances of each account in the ledger. • List each account and place its balance in the debit or credit column, as the case may be. (If an account has a zero balance, it may be included in the trial balance with zero in the column for its normal balance). • Compute the total of debit balances column. • Compute the total of the credit balances column. • Verify that the sum of the debit balances equals the sum of credit balances. If they do not tally, it indicates that there are some errors. So, one must check the correctness of the balances of all accounts. It may be noted that all assets expenses and receivables account shall have debit balances whereas all liabilities, revenues and payables accounts shall have credit balances Objectives of Preparing a Trial Balance The trial balance is prepared to fulfil the following objectives: 1. To ascertain the arithmetical accuracy of the ledger accounts. 2. To help in locating errors. 3. To help in the preparation of the financial statements. (Profit & Loss account and Balance Sheet). (i) Checking of the arithmetical accuracy of the accounting entries As indicated above, Trial Balance helps in knowing the arithmetical accuracy of the accounting entries. This is because according to the dual aspect concept for every debit, there must be an equivalent credit. Trial Balance represents a summary of all ledger balances and, therefore, if the two sides of the Trial Balance tally, it is an indication of this fact that the books of accounts are arithmetically accurate. Of course, there may be certain errors in the books of accounts in spite of an agreed Trial Balance. For example, if a transaction has been completely omitted, from the books of accounts, the two sides of the Trial Balance will tally, in spite of the books of accounts being wrong. (ii) Basis for financial statements Trial Balance forms the basis for preparing financial statements such as the Income Statement and the Balance Sheet. The Trial Balance represents all transactions relating to different accounts in a summarized form for a particular period. In case, the Trial Balance is not prepared, it will be almost impossible to prepare the financial statements as stated above to know the profit or loss made by the business during a particular period or its financial position on a particular date. (iii) Summarized ledger It has already been stated that a Trial Balance contains the ledger balances on a particular date. Thus, the entire ledger is summarized in the form of Trial Balance. The position of a particular account can be judged simply by looking at the Trial Balance. The Ledger may be seen only when details regarding the accounts are required. Preparation of Trial Balance Theoretically speaking, a trial balance can be prepared in the following three ways: (i) Totals Method (ii) Balances Method #Trial_Balance #jkssb #Accounts_Assistant