TRIAL BALANCE

MEANING:
Trial Balance is a list of closing balances of ledger accounts on a certain date and is the first step towards the preparation of financial statements. It is usually prepared at the end of an accounting period to assist in the drafting of financial statements. Ledger balances are segregated into debit balances and credit balances. Asset and expense accounts appear on the debit side of the trial balance whereas liabilities, capital and income accounts appear on the credit side. If all accounting entries are recorded correctly and all the ledger balances are accurately extracted, the total of all debit balances appearing in the trial balance must equal to the sum of all credit balances.
OBJECTIVE OF PREPARING TRIAL BALANCE:
following are:
1.Trail balance enables one to establish whether the posting and other accounting processes have been carried out without committing arithmetical errors.In other words, the trail balance helps to establish arithmetical accuracy of the books.
2.Financial statements are normally prepared on the basis of agreed trail balance; otherwise the work may be cumbersome. Preparation of financial statements, therefore, is the second objective.
3.The trail balance serves as a summary of what is contained in the ledger; the ledger may have to be seen only when details are required in respect of an account.
   EXAMPLE:

Following is an example of what a simple Trial Balance looks like:

ABC LTD Trial Balance as at 31 December 2011
Account Title	Debit	Credit
	$	$
Share Capital		15,000
Furniture & Fixture	5,000
Building	10,000
Creditor		5,000
Debtors	3,000
Cash	2,000
Sales		10,000
Cost of sales	8,000
General and Administration Expense	2,000
Total	30,000	30,000

• Title provided at the top shows the name of the entity and accounting period end for which the trial balance has been prepared.
• Account Title shows the name of the accounting ledgers from which the balances have been extracted.
• Balances relating to assets and expenses are presented in the left column (debit side) whereas those relating to liabilities, income and equity are shown on the right column (credit side).
• The sum of all debit and credit balances are shown at the bottom of their respective columns.

LIMITATION OF TRAIL BALANCE:

Following are:

1. Transaction has not been entered at all in the journal.
2. A wrong account has been written in both columns of the journal.
3. A wrong account has been mentioned in the journal.
4. An entry has not at all been posted in the ledger.
5. Entry is posted twice in the ledger.

METHOD OF PREPARING TRAIL BALANCE:

There are mainly two methods of preparing the Trial Balance.

These are:

(i) Total Method, and

(ii) Balance Method.

(i) TOTAL METHOD:

Under this method, the total of each side of account is shown respectively in the debit and credit columns of the Trial Balance. This type of Trial Balance is known as the ‘Gross Trial Balance’.

(ii) BALANCE METHOD:

As the name itself indicates, in this method, the balances of each account are shown in the Trial Balance. The debit balance is shown in debit column and credit balance is shown in credit column of amount.