The trial balance

Each step in accounting has a purpose. The journal is kept so the ledger can be made. The ledger is kept so a trial balance can be made. And the trial balance is made so the financial statements can be prepared.

A trial balance is a statement, not an account. It lists the balance of every ledger account on a particular date, debit balances in one column and credit balances in the other. It is headed "Trial Balance as on 31 March ..." (or whatever date is chosen: the end of a month, a half-year, a year).

It has three purposes: to check the arithmetic of the posting and balancing, to help find errors, and to give the figures for preparing the financial statements. Because every debit has an equal credit, the two columns should add up to the same total.

Which column? The same rules you already know:

• Debit column: assets (cash, bank, furniture, stock), debtors and other receivables, drawings, expenses (rent, wages, salaries) and losses, purchases.
• Credit column: capital, liabilities (creditors, loans, a bank overdraft, bills payable), incomes and gains (sales, commission received), provisions and reserves.

There are three ways to prepare it. The totals method lists each account's debit total and credit total (in the book, Rawat's comes to ₹3,05,000 on each side). The balances method lists only each account's balance (₹1,50,000 on each side); it is the one used most. The totals-cum-balances method shows both, in four columns.

Be careful: a trial balance that agrees is not proof that the books are free of errors. Some mistakes leave both totals equal, as the next lesson shows.