During the presentation of the general ledger, we learnt that for every debit entry, there must be a corresponding credit entry for every transaction and vice versa. If this principle is truly followed in every transaction, then the total of all debit entries will equal the total of all credit entry. When this happens, we say that the account is balanced, meaning that both sides agree in total.
A trial balance is a list of all the balances transferred from the general ledger (GL). If an account has no balance, ie if both debit side and credit side of an account are equal, then such account will not appear on the trial balance. With this, the trial balance is seen as a test of the arithmetical accuracy of all the entries in the ledgers.
Importance of Trial Balance
The importance of the trial balance is seen from the role it plays in accounting as stated below
- It serves as a check of the arithmetical accuracy of all entries in the ledgers
- It serves as the base from which the income statement and statement of financial position are prepared.
The above are also explained in the video below
To prepare a trial balance, the following steps should be taken
1. Post all credit balances in the ledgers to the credit side of the trial balance
2. Post all debit balances in the ledgers to the debit side of the trial balance
3. Accounts (ledgers) with nil balances are ignored
4. Cast the debit and credit sides accordingly. With this, it is expected you will have a balanced trial balance. As in the example for the double entry, you noticed that a trial balance was extracted from the balances and the ledgers without balances did not appear in the trial balance.
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