What is a Trial Balance?
The trial balance is an accounting listing that shows the beginning and ending balances for all accounts included in the set of books. This worksheet format makes it possible to evaluate whether or not the total debits for the period cited are in balance with the total number of credits generated for the same period. When a true trial balance exists, the total credits and total debits will be equal.
Using a trial balance to qualify the current status of accounting records is helpful in several different ways. One of the most important things that preparing such a balance achieves is identifying quickly and easily when the debits and credits are not equal. By running this type of balance on a regular basis, this makes it possible to quickly identify a specific accounting period where an imbalance took place and correct it quickly.
For this reason, many businesses choose to run a trial balance on at least a monthly basis. Depending on the billing cycle used by the company, preparing the worksheet for the balance on a biweekly basis may prove helpful. Essentially, the shorter period that is under consideration, the easier it is to identify the origin of the imbalance and take care of the situation before it becomes a major accounting issue.
In many cases, any difference between the credits and debits that shows up in a trial balance is nothing more than a posting error that took place some time during the time period under consideration. When that is the case, the error can usually be spotted with ease and a state of equality restored between the debits and credits.
A trial balance is especially effective in helping to identify a double entry posting error. Often, the difference between the credits and debits will quickly lead to a specific posting that may have been erroneously entered in two different columns or accounts within the overall set of books.
At the same time, the trial balance may indicate an inequality that was created by entering a credit or debit into the wrong account. When this is the case, finding the error may be a little more time consuming, as it will involve reviewing each posting for the period cited and confirming the posting took place in the right account and under the correct classification.
Running the trial balance is usually a precursor to the preparation of other financial documents, such as and Income and Expense Statement. By making sure that all debits and credits posted during the period are correct, preparing reports and other documents based on the accounting data is easier to accomplish.
what errors does it identify?
What is trade balance and trail balance?
Post your comments