Trial balance is a statement that is prepared to make sure that the transactions for a particular period have been duly recorded in the journal and properly posted to the relevant ledger accounts. It has debit and credit columns to record the balances extracted from ledger accounts with a view to test the arithmetical accuracy of the books of accounts.
In simple words, the trial balance is a list of all balances of ledger accounts. If the entries have been made on the correct side of relevant ledger accounts and there is no arithmetical error in the balancing process, the total of all debit balances should be equal to the total of all credit balances as listed in the trial balance. In other words, the total of debit column and the total of credit column of trial balance should agree. This agreement proves that:
- both debit and credit the aspects of each transaction have been recorded.
- the books are arithmetically correct i.e., the debit and credit balance of each account has been ascertained correctly
- the debit and credit columns of trial balance have been correctly totaled.
If the debit and credit columns of the trial balance do not agree, it indicates the presence of one or more errors in journal or ledger. These errors must be found out and rectified before proceeding further.
The agreement of debit and credit columns of trial balance does not stand as a conclusive proof of correctness. A trial balance may agree and yet there may be one or more errors in the books of accounts. For example, if a journal entry has been omitted, the debit and credit columns of trial balance will still agree.
The trial balance is prepared using a loose sheet of paper. It can be prepared at any time whenever it is desired to check the arithmetical accuracy of books of accounts. However it is mostly prepared at the end of an accounting period.
Format and method of preparation
A trial balance consists of four columns. Its format is given below:
The procedure of listing account balances in trial balance is given below:
- In first column, record the account titles in numerical order (the order in which accounts appear in ledger).
- Record the account numbers in the second column.
- Record the balances of each account – the debit balances in debit column and credit balances in credit column.
- Total the debit and credit columns.
- Compare the total of two columns.
By using the balances of ledger accounts given on “standard form of ledger accounts page“, we can prepare the trial balance as follows: