Objectives of Preparing the Trial Balance

The objectives of preparing a trial balance are:

1. To deduce the arithmetical accuracy of the ledger accounts.
2. To help in detecting errors.
3. To help in preparing the financial reports and statements. (profit and Loss account and Balance Sheet).

1. To deduce the arithmetical accuracy of the ledger accounts:

As stated before, the reason behind making a trial balance is to make sure whether all debits and credit are appropriately recorded in the record or not and that all accounts have been effectively and correctly balanced. As a synopsis of the record, it is a rundown of the accounts/records and their balances.

At the point when the aggregates of all the debit balances and credit balances in the trial balance are equivalent, it is accepted that the posting and balancing of accounts/records is numerically correct.

Nonetheless, the tallying of the trial balance is anything but a decisive confirmation of the precision of the accounts and records. It only guarantees that all debits and the relating credits have been appropriately recorded in the record.

2. To help in detecting errors:

At the point when a trial balance doesn’t tally (that is, the sum of debit and credit sections are not equivalent), we realize that one error has occurred. The mistakes may have occurred at one of these stages in the accounting procedure:

(1) totalling of subsidiary books,
(2) posting of journal entries in the record,
(3) computing account balances,
(4) conveying account balances to the trial balance, and
(5) totalling the trial balance sections.

It might be noticed that the accounting precision isn’t guaranteed regardless of whether the sum of debit and credit are equivalent since certain errors don’t influence equality of debit and credits.

For instance, the book-keeper may debit a right amount in a wrong record while making the journal entry or in posting an entry to the record. This mistake would make two accounts have wrong balances however the trial balance would tally. Another mistake is to record an equivalent debit and credit of a wrong amount. This mistake would give the two records incorrect balances however would not make unequal debit and credits. Therefore, the fact that the trial balance has tallied doesn’t infer that all entries in the books of unique record (journal, cash book, and so forth.) have been recorded and posted accurately. In any case, equivalent aggregates do propose that a few kinds of errors likely have not occured.

3. To help in preparing the financial reports and statements. (profit and Loss account and Balance Sheet):
Trial balance is considered as the connecting link between bookkeeping records and the preparation of financial statements and records. For setting up a financial statement, one need not refer to the record. Actually, the accessibility of a tallied trial balance is the initial step in the readiness of financial statements. All income and expense ledgers showing up in the trial balance are moved to the trading and profit and loss record and all liabilities, capital and assets accounts are moved to the balance sheet.

The objectives of preparing the trial balance are manifold as mentioned above. It makes the task of the accountant easier while preparing the financial statements.

Chapter 6 -Trial Balance and Rectification of Errors

1. Meaning of Trial Balance
2. Objectives of Preparing the Trial Balance
3. Preparation of Trial Balance – Trial Balance Questions
4. Significance of Agreement of Trial Balance
5. Searching of Errors
6. Rectification of Errors