What is a Trial Balance? State its objectives and characteristics. Give some reasons for disagreement of the Trial Balance. A ‘Trial Balance’ is a list of all the General ledger accounts (both revenue and capital) contained in the ledger of a business. This list will contain the name of the nominal ledger account and the value of that nominal ledger account. The value of the nominal ledger will hold either a debit balance value or a credit balance value.
The debit balance values will be listed in the debit column of the trial balance and the redit value balance will be listed in the credit column. The profit and loss statement and balance sheet and other financial reports can then be produced using the ledger accounts listed on the trial balance. The following are the important objectives of trial balance: 1. To Check The Arithmetical Accuracy Trial balance is based on the double-entry principle of debit equals credit or credit equals debit. As a result, the debit and credit columns of trial balance must always be equal.
If they do, it is assumed that the recordings of financial transactions are ccurate. Conversely, if they do not, it is assumed that they are not arithmetically accurate. Therefore, one important purpose of preparing trial balance is to provide a check on the arithmetical accuracy of the recordings of the financial transactions. 2. To Help Locate Accounting Errors Since the trial balance indicates if there is any error committed in the Journal and the ledger, it helps the accountant to locate the error because the starting point of locating errors is trial balance itself. 3.
To Summarize the Financial Transactions A business performs several numbers of financial transactions during a certain period of time. The transactions themselves cannot portray any picture of the financial affairs of the business. For that purpose, a summary of the transactions has to be drawn. The trial balance is prepared with a view to summarize all the financial transactions of the business. 4. To Provide the Basis for Preparing Final Accounts Final accounts are prepared to show profit and loss and the financial position of the business at the end of an accounting period.
These accounts are prepared by using the debit and credit of all ledger accounts. Therefore, since the trial balance is a statement of the debit and credit balances of the ledger accounts, it provides the basis for the preparation of the final accounts. Characteristics of Trial Balance 1. It is a list of balances of all Ledger accounts and Cash Book 2. It is not a part of the double entry system of book-keeping. It is only a working paper. 3. It can be prepared on any date 4. It verifies the arithmetical accuracy of posting of entries from the Journal to the Ledger. 5.