When is the trial balance prepared

when is the trial balance prepared

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Balancing of Books

The ending balances of all accounts of an entity for a given financial period are summarized in the trial balance. To ensure that the balances of the various business accounts are correct, the debit and credit totals must be equal. If this is not the case, then some of the individual accounts are incorrect and hence you must carry out adjustments to address this anomaly.

Identify Errors

Errors can be committed when preparing books of accounts. For example, employees who prepare the accounts may make mistakes in adding the entries. Various errors can be committed when preparing the books of accounts, such as errors of omission and commission. However, the trial balance mainly detects arithmetical errors. Failure of the debit and credit sides of the trial balance to agree indicates that errors exist in the books of account.


The main aim of preparing a trial balance is to ensure that the bookkeeping system

is mathematically correct. Prior to preparing the final accounts at the end of an accounting period, a trial balance is prepared to detect arithmetical errors. The trial balance ensures that all the postings made to the ledger accounts do not contravene rules of double entry bookkeeping.

Preparing Final Accounts

Preparation of final accounts, income statements and balance sheets is the final stage of financial reporting. Transfer of balances from the ledger accounts to the trial balance occurs at the end of the accounting period. The income statement and balance sheet are then prepared using the account balances indicated in the trial balance.

Aids in Comparison

Because a trial balance is a summary of all the ledger accounts in an accounting period, it's an effective comparison tool. It's easy to compare balances of the current period with those of previous periods. Manually collecting data from the ledger account for purposes of comparison consumes more time compared to when a trial balance is used.

Source: ehow.com

Category: Forex

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