Specimen of Trial Balance

A trial balance is a report that shows the balances of all of a company’s general ledger accounts at a specific point in time. A trial balance includes accounts for all important accounting elements, including as assets, liabilities, equity, income, expenses, gains, and losses. It is generally used to determine the balance of debits and credits entries from the general ledger transactions at a given moment in time.

The trial balance is prepared to make the appropriate adjusting entries to the general ledger in addition to detecting errors. It is recalculated after the correcting entries have been posted to ensure that the overall debits and credits remain balanced. It isn’t a legally binding financial statement. It’s normally only used within the organisation and isn’t shared with anybody else.

Trial Balance

The totals of all general ledger accounts are shown in a trial balance. Each account should have a unique account number, account description, and ultimate debit/credit amount. It should also provide the end date of the accounting period for which the report is being prepared. The key distinction between the trial balance and the general ledger is that the general ledger displays all transactions by account, but the trial balance only displays account totals, not individual transactions. Finally, adjustment entries must be reflected on a trial balance if they were made. It should display the values prior to the adjustment, the adjusting entry, and the balances after the adjustment in this situation.

Errors in a Trial Balance

A trial balance can reveal the general ledger’s arithmetic error. However, there are a number of errors that this report does not catch:

Error of Omission

The transaction was not recorded in the database.

Error of original entry

On both sides of the double-entry transaction, the amounts are incorrect.

Error of Reversal

When the correct amounts are entered into a double-entry transaction, yet the account to be debited is credited and the account to be credited is debited.

Principle Error

The entered transaction is in violation of accounting’s basic rules. For instance, the amount entered was right, and the appropriate side was selected, but the account type was wrong (e.g., expense account instead of liability account).

Commission Error

The amount of the transaction is right, but the account that was debited or credited is incorrect. Commission error is related to principle error, however commission error is frequently the result of oversight, whereas principle error is the result of a lack of understanding of accounting principles.

Trial Balance Format

A trial balance is a tabular format that shows all of the ledger balances in one place. It contains transactions made during the year as well as the opening and closing balances of ledgers, as every organisation must analyse its financial condition over a specified period of time. The trial balance lists all accounts in one place, with both debit and credit balances, making it easy to analyse the position and transactions done during that time period.

The trial balance format usually comprises three columns. The first column, or particulars, describe the ledger account, such as the name or head under which it is formed. Then there’s AMOUNT (DEBIT), which refers to ledgers with debit balances; normally, an entity’s assets are listed in this column. The final ledger is for AMOUNT (CREDIT), which includes credit balances such as share capital, reserves and surpluses, current and non-current liabilities, and so on.

Explanation of Trial Balance

The following steps can be used to create the Trial Balance:

• Make a ledger entry for each journal entry.
• Check to see whether any transactions were missed or if all of the balances were prepared accurately.
• The final step is to organise all of the ledger accounts’ closing balances in a debit and credit array in a place named Trial Balance.

Purpose 

The main goal of creating a trial balance format in Excel is to reconcile all ledger balances so that the entity’s financial statements can be presented or generated in accordance with legal standards at the conclusion of a particular period. To put it another way, passing journal entries is the first and most important step.

The journal entries that passed would then be ledger posted to their appropriate ledgers. Following that, the Trial Balance could only show the proper closing balances of all the ledgers. Because some entities are required by law to prepare a trial balance, some entities prepare the trial balance for that purpose as well.

Conclusion

A trial balance is an important tool for every corporation to use in order to reconcile whether or not the books of accounts are properly kept. All expenses, incomes, revenues, payments, assets, liabilities, share premiums, and other ledger balances must be reported in the trial balance. By putting a negative sign in the amount column, the debit balance of the profit and loss account is shown on the credit side of the trial balance. When preparing ledgers and trial balances, one must be extremely vigilant in order to ensure that each ledger is properly constructed. Otherwise, the final outcome could be that the financial statements created do not provide us with a realistic view of the business operations or results. Finally, the task for preparing the entity’s trial balances for the designated time, followed by the preparation of financial statements, should be entrusted to someone with a strong understanding of accounting and relevant expertise in such a sector.