M2. Explain the Purpose of a Trail Balance. Accounting Systems

M2.

Explain the purpose of a trail balance?

It is a summary of the balance of all accounts in the chart of accounts to, firstly, make sure the books are balanced. Then, these account balances are used to prepare financial statements. The trial balance is a work sheet on which you list all your general ledger accounts and their debit or credit balance. It is a tool that is used to alert you to errors in your books. The total debits must equal the total credits. If they don't equal, you know you have an error that must be tracked down.

When closing out your books at the end of an accounting period, you will prepare three trial balances:

1. A preliminary trial balance is prepared using your general ledger account balances before you make adjusting entries.

2. An adjusted trial balance is done after preparing adjusting entries and posting them to your general ledger. This will help ensure that the books used to prepare your financial statements are in balance.

3. A post-closing trial balance is done after preparing and posting your closing entries. This trial balance, which should contain only balance sheet accounts, will help guarantee that your books are in balance for the beginning of the new accounting period.

What if your trial balance does not balance? In other words, what if total debits don't equal total credits? This shouldn't surprise or discourage you. In fact, it might be more surprising if it does balance. Accounting errors happen. Even experienced bookkeepers normally have to find trial balance errors.

•Trial Balance acts as the first step in the preparation of financial statements. It is a working paper that accountants use as a basis while preparing financial statements.

•Trial balance ensures that for every debit entry recorded, a corresponding credit entry has been recorded in the books in accordance with the double entry concept of accounting. If the totals of the trial balance do not agree, the differences may be investigated and...