In: Accounting
Discuss the three trial balance with literature review and by providing example for each use of trial balance?
Trial Balance is a listing of all the accounts and their respective balances. It is a statement of debit balance and credit balance extracted from ledger accounts on a particular date. It is a two-column schedule listing the titles and balances of all the accounts in the order in which they appear in the ledger. The debit balances lists in the left-hand column and the credit balances in the right-hand column. In the case of General Ledger, the totals of the two columns should agree.
The fundamental principle of the double-entry system of accounting where for every debit, there must be a corresponding credit. Therefore, for every debit or a series of debits given to one or several accounts, there is a corresponding credit or a series of credits of an equal amount given to some other account or accounts and vice- versa. Hence, according to this principle, the total of debit amounts must equal the credit amounts of the ledger at any date. If the various accounts in the ledger are balanced, then the total of all debit balances must be equal to the total of all credit balances.
If the same is not true then the books of accounts are arithmetically inaccurate. It is, therefore, at the end of the financial year or at any other time, the balances of all the ledger account extract and record in a statement known as Trial Balance and finally totaled up to see whether the total of debit balances is equal to the total of credit balances.
They may thus define as a statement of debit and credit totals or balances extracted from the various accounts in the ledger books to test the arithmetical accuracy of the books. The agreement of the Trial Balance reveals that both the aspects of each transaction have been recorded and that the books are arithmetically accurate. If both sides of Trial Balance do not agree with each other, it shows that there are some errors, which must detect and rectify if the correct final accounts are to prepare.