Unit 8 - Accounting Systems M2 explain the purpose of a trial balance. BTEC business level 3 extended diploma. Please leave a review if you found this useful, thank you!
“A trial balance is a bookkeeping or accounting report that lists the balances in
each of an organization's general ledger accounts. (Often the accounts with
zero balances will not be listed.) The debit balance amounts are listed in a
column with the heading "Debit balances" and the credit balance amounts are
listed in another column with the heading "Credit balances." The total of each
of these two columns should be identical.”
A trial balance is a report of all the debts and credits listed in each of the
organisation's general ledger accounts. There are two headings including credit
and debit sides, The debt side shows all the money going out the business,
such as expenses accounts, purchases accounts and drawings. The credit side
shows where all the money is coming into the business such as interest and
sales accounts. The total of the credit and debit sides should always be equal
before preparing the final accounts.
Purpose of a trial balance
“The purpose of a trial balance is to ensure that all entries made into an
organization's general ledger are properly balanced. A trial balance lists the
ending balance in each general ledger account.” The main primary purpose of a
trial balance is to make sure that the credits equal all of the debts, and that
there are no errors, so the business is able to produce accurate financial
statements.
When the credits equal all the debts, it means that the all the general ledger
entries are balanced, if they do not match then one more of the transactions
from the ledger accounts were not balanced, which then the business has to
figure out what is not correct and fix the issue before the preparation of the
financial statements because the credits must always equal the debts.
Another purpose of a trial balance is that it makes it easier to prepare final
accounts and balance sheets; the business does not need to go into each of the
ledger accounts and check the balance to create final accounts as the trial
balance includes balances of all the accounts. This saves a lot of time for the
businesses and makes it more efficient.
Another purpose for creating a trial balance is that it can be used for
comparison for the management. “Because a trial balance is a summary of all
the ledger accounts in an accounting period, it's an effective comparison tool.”
The trial balance includes all the summary of the general ledger accounts in a
1
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller sadiaa. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £3.49. You're not tied to anything after your purchase.
