By now you should have observed that for every debit entry that is given to an account, or for every series of debits given to several accounts, there is a credit or a series of credits of an equal amount given to some other accounts and vice versa. It follows, consequently, that any time the debit balances standing in all the ledger accounts will equal to credit balances.
At the end of the financial year (or at any other time) the balance (or totals) of all the ledger accounts arc extracted, and a schedule is prepared in journal form to test whether in fact, the total debits equal the total credits. This schedule of balances is called a Trial Balance.
If the totals agree-what does it average? It provides a reasonably reliable check and proves the arithmetical accuracy of the book-keeping entries.
If the totals do not agree-what does it average? It shows that there is definitely something wrong b (some error) either in thy passing of the double entry or in the extraction of balances.
Definition of Trial Balance
According to Carter, “Trial Balance is the list of debit and credit balances, taken out from ledger, it also includes the balances of cash and bank taken from cash book.”
According to Pickles, “The statement prepared with the help of ledger balances, at the end of financial year (or at any other date) to find out whether debit total agrees with credit total is called Trial Balance”.
According to Rowlland, “The final statement of balances, joint and mixed, is called Trial Balance”.
Ideal definition, “On the basis of different definitions given by different accountants at different times, following ideal definition of trial balance can be adopted :
“According to double entry system, after recording all the transactions into journal and posting them into ledger and ascertaining their balances, the statement prepared to ascertain the arithmetical accuracy of accounts on a certain date is called Trial Balance. It is the statement, on the basis of which Trading, Profit and Loss Account and Balance Sheet is prepared”.
On analyzing the above definition we acquire the following characteristics of Trial Balance :-
(1) According to double entry system. after recording all transactions until all Ute business transactions are journalized, and posted, strictly according to double entry system, a trial balance can’t be extracted.
(2) After finding out the differences of debit and credit sides of all the ledger accounts :- All the accounts opened in ledger totaled and balances (differences) are ascertained, only then trial balance can be prepared.
(3) Prepared on a particular date : Generally trial balance is prepared at the end of accounting year, but it can also be prepared monthly, half yearly or quarterly.
Preparation of Trial Balance
Trial Balance may be prepared either taking into consideration the total of each side of every ledger account. consequently you may follow either “Total Method” or “Balance Method”.
If the total of debit sides of all the accounts in the ledger is placed in one column of the list and similarly total of credit sides of all the accounts in the ledger is placed win another column of the list then this list of total (Trial Balance) will be known to have been prepared with the Total Methods.
Second method of preparing Trial Balance is to find out the difference of the ‘ sides of every account. If debit side of an account is bigger, than insert the difference on the credit side of the account. It is known as ‘debit balance’. If credit side of an account is bigger, then insert the difference on the debit side of the account. It is known as ‘credit balance’. Now prepare list of balances (Trial Balance) by putting all debits balances in one column and credit balances in another column. Such method is known as Balance Method.