finance basics trial balance meaning of trial balance trial balance is a statement of debit and...

Finance Basics(Trial Balance)

Finance Basics

• Trial Balance• Meaning of Trial Balance

• Trial balance is a statement of debit and credit totals or balances extracted from the various accounts in the ledger, and is done with a view to test the arithmetical accuracy of the books of account.

• It is an abstract of ledger accounts at a specified date, showing the debit and credit totals for all the accounts.

• It is usually prepared periodically, either at the end of each month or quarter.

Finance Basics• Trial Balance

• Objectives of Trial Balance1. To Check arithmetical accuracy of books of accounts:

The main objective of the trial balance is to check the arithmetical accuracy of the books of account. If the total of debit and credit columns of the trial balance is equal, it is assumed that the trial balance is correct.

2. Compliance to double entry system: Another objective of the trial balance is to verify whether the dual aspect of each and every transaction is complete. Every debit must have a corresponding credit. If the totals of both the sides of the trial balance are equal, it is assumed that the double entry system has been strictly adhered to.


• Objectives of Trial Balance3. Helpful in preparing final accounts: The trial

balance records the balance of various ledger accounts at one place which helps in the preparation of the profit and loss account and the balance sheet which can be used for knowing the financial position of a business.

4. To detect errors: If the trial balance does not agree, then it means that there are some errors in the recording or posting or balancing of the accounts. Steps are taken to locate and rectify the errors


• Objectives of Trial Balance5. Summary of ledger: The main aim of preparing a

trial balance is to summarize the balance of all the accounts of a ledger at one common place in the form of a statement.

6. Connective link: One of the main objectives of preparing a trial balance is to use it as a connecting link between the ledger and the final accounts.

7. Check on accounting staff: Trial balance activates the accounting staff because of the reason that their work can be checked through the trial balance.

Finance Basics

• Trial Balance• Trial balance of XYZ as on 30th Apr, 2010

S. No

Name/Head of accounts Debit total

Credit Total

1.2.3.4.5.6.7.8.9.10.11.12.

Cash a/cCapital a/cOffice furniture a/cPurchase a/cFahd a/cSamy a/cSales a/cDiscount allowed a/cDiscount received a/cBank a/cSalary a/cDrawings a/c

13,200--

1,5003,0003,0002,500

---100

---1,100

400300

5,80010,000

------

3,0002,5003,300

---200300

------

25,100 25,100


• Advantages of Trial Balance1. Proper record of transaction: The main advantage of preparing the

trial balance is to ensure that the transactions have similar debit and credit amounts. It can be done only with a proper recording of transactions in the journal as well as in the ledger.

2. Base for preparing final accounts: The preparation of the final accounts is not possible unless the trial balance is prepared first.

3. Arithmetical accuracy of books of accounts: An agreed trial balance is a prima facie evidence of arithmetical accuracy of the books of accounts.

4. Rectification of errors: The main benefit of preparing a trial balance is that errors can be easily rectified even before the preparation of the final accounts.

5. Summary: Trial balance provides the summary of all accounting information which ultimately helps the management in taking certain financial decisions.

Finance Basics

• Ledger• Advantages of Ledger

4. Arithmetical accuracy: Ledgers are helpful for preparing the trial balance. If in a trial balance both debit and credit sides are equal, then it is evident that the ledger balances are correctly carried forward. Thus, it is a check of arithmetical accuracy.

5. Knowledge of income and expenditure: In ledger, a separate account of income and expenditure is kept which can tell us how much is spent on each item.

6. Helpful in preparing balance sheet: Various ledger balances are carried to the trial balance, which is the basis of the balance sheet.

Finance Basics

• Trial Balance• Questions

• Choose the correct answer1. Trial balance is :

a) An accountb) A statementc) Both (a) and (b)d) None of these

Finance Basics


• Choose the correct answer2. Trial balance is prepared from which book?

a) Journalb) cash bookc) ledgerd) None of these

Finance Basics


• Choose the correct answer3. Which of the following errors will not affect the trial

balance?a) Wrong balancing of an accountb) Writing an amount in the wrong account on correct sidec) Wrong totaling of an accountd) None of these

Finance Basics


• Choose the correct answer4. Trial balance records balances

a) Of all accountsb) Of personal and real accountsc) Of only nominal accountsd) None of these

Finance Basics


• Choose the correct answer5. If the two sides of the trial balance are equal, it is an

indication of the fact that the books of accounts are ……….. Accurate.a) Arithmeticallyb) Not arithmetically c) notd) None of these

finance basics trial balance meaning of trial balance trial balance is a statement of debit and...

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