Preparation of Trial Balance
The first step in the preparation of final accounts is the preparation of trial balance. So it is absolutely essential that if your trial balance is perfect, then your final accounts will not contain any error. Let us learn more about the methods and procedures of the preparation of trial balance.
Trial Balance
A trial balance is a bookkeeping worksheet-like account that mirrors all the credit and debit balances of all the ledger accounts. Once we set up this statement, we can prepare the final accounts of the company on the basis of this trial balance.
One other important use of the trial balance is that it can decide the arithmetic accuracy of the accounts. So if both assets and liability of the trial balance tally, we can be sensibly guaranteed of the exactness of the records. It does not ensure that the accounts are liberated from all mistakes but it can at least establish mathematical accuracy.
The present bookkeeping programming has been composed to dispense with those mistakes. Henceforth, the preliminary parity is less significant for accounting purposes since it is practically sure that the general ledger and the trial balance will have the debits equal to the credits.
How to prepare a trial balance
Trial balances are usually prepared at the end of an accounting period. These balances can be prepared either manually or by using an accounting system on a computer. The following are the steps to take when preparing a trial balance for your business:
Before you start off with the trial balance, you need to make sure that every ledger account is balanced equally. The difference between the sum of all the debit entries and the total of all the credit gives the equalization.
Set up an eight-section worksheet. The section headers ought to be for the record number, account name, and the comparing segments for debit and credit charges.
For every ledger account, transfer to the trial balance worksheet the account number and account name along with the account balance in the appropriate debit or credit column
Add up the amounts of the debit column and the credit column. Ideally, the totals should be the same in an error-free trial balance. When the totals are the same, you may close the trial balance.
If there is a difference, accountants have to locate and rectify the errors.
Balanced trial balance
When you post all the journal entries correctly in the general ledger, then transfer the right data from the general ledger to the trial balance, your credit total, and debit, grand total should be equal, that will be your balanced trial balance.
However, a trial balance can still balance when the below errors were made:
The omission of the entire transaction in a journal or general ledger
Failure to transfer a transaction from journal to general ledger or if you transfer any incorrect data
If you post a transaction in the wrong account
Unbalanced trial balance
An unbalanced trial balance clearly indicates the errors in the accounting process. Since you will use the information in the trial balance while preparing the financial statement, then and there you should figure out the error before you continue with your accounting process.
The main cause of this is that the total amount debited is different from the total amount credited in every single accounting entry. This always happens in the old days when the accounting process is not computerized. But with today’s accounting software, it is almost impossible to post an “unbalanced” entry that results in this error.
Finally, preparing a trial balance every now and again implies that you will have a few transactions to go through, and in case you make any error, it can be traced out easily. The very first step that every accounting firm takes when providing bookkeeping services is to prepare a trial balance. Along these lines, on the off chance that you don't know of how to set it up, get in touch with us for help. Else, you will miss your whole accounting process.
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