Trial balance is a statement which accounts all the balances of the Personal account, Real account and Nominal account regardless of either Revenue or Capital A/c. It comprises of 2 columns, debit and credit. If the transactions are documented systematically by providing dual-sided effect and later posted methodically, then the sum total of both the columns would be similar.
If there is any discrepancy between the total of the debit and credit balances, the trader can conclude that there are certain mistakes or errors in posting, carry forward etc.,and he will have to check the posting again to find posting again to find out the reasons for disagreement of Trial-Balance.
Objectives of Trial-Balance
- It facilitates preparation of final accounts.
- It helps detect errors in the books of accounts. Further It also helps to rectify those errors before the preparation of final accounts.
- It also ensures that the balance of each account whether debit or credit has been transferred properly to the respective column of the trial balance.
- It ensures that the balance in each account has been computed correctly.
- Totals Method: Under this method the total of the debit side of an account is posted on the debit side and the total of credit side of an account is posted on the credit side of the Trial-Balance.
- Net Balance Method: This method is widely used for preparing a trial-balance.Under this method every ledger account must be balanced first. Then the debit balance of the accounts will be posted on the debit side and the credit balances of the accounts will be posted on the credit side.
Construction of a Trial-Balance
- Firstly every ledger account must be balanced. Balancing is the difference between the sum of all the debit entries and the sum of all the credit entries.
- Then prepare a three column worksheet. One column for the account name and the corresponding columns for debit and credit balances.
- Fill out the account name and the balance of such account in the appropriate debit or credit column
- Then we total both the debit column and the credit column. Ideally, in a balanced error-free Trial-balance these totals should be the same
- Once you compare the totals and the totals are same you close the trial-balance. If there is a difference we try and find and rectify errors.