Page 101 - Account 10

with their debit and credit balances on a specified period but it is not a distinguished
account of the businessman’s affairs. A trial balance is very important tool of financial
management and it has many objectives. The followings are the basic and most common
objectives of trial balance:
i. To check the totals of the subsidiary books
A trial balance is prepared with a view to see the accuracy of the totals in the
subsidiary books. i.e. the sub-division of journal. For examples, the grand total of all the
creditors (the supplier of the goods) should be equal to the total of the purchase book; the
grand total of all the debtors (credit sales) should be equal to the total of the sales book
of a certain period. Similarly, single journal is prepared for all the business transactions.
Thus, the debit total and credit total must be equal. A trial balance is intended to check all
such numerical totals to find out the numerical accuracy.

ii. To check the Arithmetical Accuracy of Posting
A trial balance is viewed to check the arithmetical accuracy of the posting in the
ledger accounts. If correct posting has been made from journal or sub-division of journal,
the debit and credit totals of the trial balance must tally.

iii. To Facilitate the Preparation of Final Accounts
Trial balance is a statement of all the ledger accounts with their balances on a
specified period. The ledgers are made of assets, capital and liabilities and income, gain,
expenses and losses separately on individual headings. It serves as a source statement for
preparing final accounts. With the help of trial balance, a businessman prepares profit and
loss account by extracting the incomes, gains and expenses and losses (of revenue type) in
order to determine profit or loss of his business. Similarly he/she prepares balance sheet
by extracting the capital, liabilities and assets from the information of the trial balance
upto a certain date.

iv. To Serve as an Aid to the Management
By comparing the trial balance of various periods, specially of the different years,
certain important changes in the different figures can be ascertained and its analysis can
be made. It serves as an aid to the management in taking certain decisions.

v. To Minimize Errors and Frauds
The trial balance helps to minimize errors and frauds. If it does not agree, it helps
to locate and rectify the errors as well as it gives moral presence to the accountant to
maintain the books of accounts with due care and honesty.

vi. To Facilitate Audit
Trial balance collects all the ledger balances at a place and checks arithmetical accuracy
in recording and posting. Ledger balances provide necessary financial information for the
preparation of final accounts. If it is correct, it helps for internal audit and also finally for
external audit.

100 Aakar’s Office Practice and Accountancy - 10 Trial Balance 101