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Trial Balance

Trial balance (in financial accounting) is a list of closing balances ledger accounts on a certain date that provides a test of whether total debits equals total credits. In very simple words it is prepared to check & tally if what has been spent is equal to what has been earned. Trial balance is prepared after closing entries have been posted to respective ledger accounts. Its objective is to test whether total debits equal total credits for all real (permanent) accounts, prior to beginning a new accounting period. Trial balance is the third step in preparation of financial accounts.

1st is the general JOURNAL ENTRIES where transactions/entries are made.

Next these are posted in the LEDGER.

From the ledger they are transferred to the TRIAL BALANCE to check if there were any errors made while writing those transactions in the journal and ledger.

Importance Of Trial Balance

The trial balance is important due to the following reasons

* Trial balance summarizes all the financial transactions of the business.
* Trial balance provides a check on the arithmetical accuracy of recordings of all the financial transactions of the business.
* Trial balance helps in locating errors by providing a starting point for the location of errors committed if any.
* Trial balance provides a basis for the preparation of final accounts.

Methods Of Preparation Of Trial Balance

The following are the methods of preparing a trial balance

1. Total Method
Under total method, trial balance is prepared by taking up the total of debits and credit of all ledger accounts.

2. Balance Method
Under balance method, only the balances of all the ledger accounts are taken up to prepare the trial balance.

3. Compound Method
Compound method is the combination of both the methods, total method and balance method. Thus, compound method is also known as total cum balance method.


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