Question

Describe the purpose for the preparation of trial balance

Answer 1

The important purposes for which the trial balance was prepared are explained with the help of the following points:

1. Ascertain the arithmetical accuracy of ledger accounts – The trial balance helps to ascertain whether all the debits and credits are properly recorded in the ledger.

When the debit and the credit balances are equal, it is said that the posting and the balancing of the accounts is arithmetically correct.

However, the tallying of the trial balance cannot be considered as a conclusive proof of accuracy of the books.

2. Helps in locating errors – When a trial balance does not tally, it helps in detecting or locating the errors.

The error may have occurred at any one of the stages of an accounting process; namely,

1. Totaling of the subsidiary books

2. Posting of journal entries in the ledger

3. Calculating account balances

4. Carrying account balances to the trial balance

5. Totaling the trial balance columns

3. Helps in the preparation of the financial statements – Trial balance is a statement which lists the debit and credit balances of all ledger accounts and helps in the preparation of the financial statements.

Hence, it is considered as a connecting link between the accounting records and the preparation of financial statements.