The statement which is prepared at a particular date with the ledger account balances to test the arithmetical accuracy of the ledger accounts and also to facilitate preparation of financial statements is called a trial balance.
It is to be noted that trial balance is not an account; it is a mere a statement. A trial balance contains the columns – serial number of ledger accounts,
Account tittles, Ledger folio, debit balance and credit balance.
If a trial balance agrees i.e. total of debit money column and total of credit money column are equal, it proves that the ledger accounts are arithmetically accurate.
The famous writer R.N. Carter says;
A trial balance is a schedule or a list of balances both debit and credit extracted from the accounts in the ledger and including the cash and bank balances from the cash book.
According to J.R. Batliboi,
A trial balance may be defined as a statement of debit and credit balances extracted from the ledger with a view to testing the arithmetical accuracy of the books.
Characteristics of Trial Balance
It appears from the definitions of trial balance that the trial balance contains the following features;
- Trial balance is neither an account nor a part of it. It is a statement containing all balances of ledger accounts.
- It is not recorded in any book of account. Trial balance is prepared in a separate sheet or paper.
- A, trial balance is prepared with the balances of accounts at the end of a particular accounting period. A trial balance is prepared before preparation of financial statements at the end of accounting period.
- The statement contains all kinds of accounts, irrespective of their classifications, such as assets liabilities, income-expenses etc. It helps testing arithmetical accuracy of accounts.
Objects of Trial Balance
Although trial balance is not an account, it is prepared to fulfill the following objects;
- The main object of trial balance is to proof the arithmetical accuracy of accounts.
- It is prepared to check whether the debit and credit accounts of each transaction have been recorded properly.
- For convenient preparation of financial statements trial balance is prepared bringing debit and credit ledger balances together.
- To proof accurate balancing of ledger account.
- To detect mistakes in the process of accounts, if any.
- To provide information to the proper authority in time.
- To compare the balances of various ledger accounts of current year with those of previous year.
Why do both Sides of Trial Balance Agree
At the time of posting of transaction from journal to ledger debit account of journal is debited in the same account and credit account of journal is credited in the same account in ledger.
As a result, total of debit balance of ledger accounts becomes equal to the total of credit balance of ledger accounts.
Therefore, According to double entry principle;
If all correctly drawn ledger accord balance is recorded in trial balance in debit and credit money columns properly, the totals of both columns of trial balance become equal.