Objectives of preparing trial balance
Trial balance is prepared with the following
objectives:
Trial balance is the means by which the
arithmetical accuracy of the book-keeping work is checked. When the totals of
debit column and credit column in the trial balance are equal, it is assumed
that posting from subsidiary books, balancing of ledger accounts, etc. are
arithmetically correct. However, there may be some errors which are not
disclosed by trial balance.
Financial
statements, namely, trading and profit and loss account and balance sheet are
prepared on the basis of summary of ledger balances obtained from the trial
balance.
When the
trial balance does not tally, it is an indication that certain errors have
occurred. The errors may have occurred at one or more of the stages of
accounting process, namely, journalising or recording in subsidiary books,
totalling subsidiary books, posting in ledger accounts, balancing the ledger
accounts, carrying ledger account balances to the trial balance, totalling the
trial balance columns, etc. Hence, the errors should be located and rectified
before preparing the financial statements.
The summary
of ledger accounts is shown in the trial balance. Ledger accounts have to be
seen only when details are required in respect of an account.
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