What is Trial Balance in Accounting
Trial Balance in Accounting is a book keeping that reports all list of accounts balances (Assets, Liabilities, Capital, Income, Expenses) in debit and credit form. Trial balances are prepared on a particular date with all the ledger accounts balance.
Trial balance is one of the important financial reports in accounting as they helps in preparation of financial statements of an organization / company for reporting purpose internally and externally.
Rules of Trial Balance Posting in Accounting
- All the assets and expenses are shown in debit side.
- All incomes and liabilities are shown in credit side.
- All debit balances and credit balances should be equal each other.
It is mandatory to determine nature of account for debit entry and credit entry in trial balance. You can check all golden accounting rules using debit and credit here.
Trial Balance preparation method
Trial balances can be prepared by two methods.
- Total Balance Method: Under this method, the total amount of debit side and total amount of credit side of each individual account is taken in trial balance
- Net Balances Method: Under this method, the balance of each ledger account is taken in trial balance.
- Total or Balance Method
Steps to be followed while preparing trial balances
- Step 1: Determine the balance of each general ledger account
- Step 2: Place the ledger account balance in debit side or credit side as per rules of accounting
- Step 3: Calculate the total balances of debit column
- Step 4: Calculate the total balances of credit column
- Step 5: Verify the sum of debit column balances equal to sum of credit column balances.
Advantages of trial balances
- Preparation of final accounts will be easy with the trial balance
- Through trial balances, you can prepare balance sheets and profit & loss statements
- Helps in identification of errors, when debit column and credit column balances are not equal