A trial balance is a list of account balances from the ledger showing the arithmetic accuracy of the ledger accounts. A trial balance is usually prepared at the end of a period. It can be prepared daily, weekly, monthly, quarterly, half yearly or a year. In an accounting software application package, trial balance is updated immediately a new transaction is entered.
Read also: The principles of double entry.
USES OF TRIAL BALANCE
(1) It is used to test the arithmetic accuracy of the ledgers. The debit side of a trial balance is expected to be equal to the credit side. Therefore, if the ledger postings are accurate, it will reflect in the trial balance.
(2) It is used to detect errors in posting to ledger account.
(3) Trial balance can be adjusted to reflect end of the year adjustments.
(4) Trial balance is used to prepare the financial statements of an entity.
Read also: IAS1- General purpoae financial statement.
FORMAT OF A TRIAL BALANCE
TRIAL BALANCE AS ON 30TH JUNE, 2016.
Account Receivables & payables xx xx
Returns xx xx
Cash and cash equivalents xx
Loan and Debentures xx
Intangible assets xx
Non current assets xx
Discount xx xx
NOTE: The debit side and the credit side must be the same figure. Discount allowed is on debit side while discount received is on credit side. Return inwards is on debit side and return outwards is on credit side.