What is a Trial Balance? Definition, Examples and Limitations of bookkeeping

Want create site? Find Free WordPress Themes and plugins.

Trial Balance Definition:

In Accounting, Trial balance is a consolidated list of all the general ledger accounts of the business. Debit balances of ledger accounts will be listed across debit column of trial balance. Whereas Credit balances of ledger accounts will be listed across credit column of trial balance. Information listed on this statement report is used to prepare profit and loss statements and balance sheet of the business. Credit and debit trial balance should match. In-case of mismatch one has to rectify errors in nominal ledger accounts.

In today’s computerized accounting systems, any clerical errors or omissions are eliminated by accounting software’s. In other words, preparation of trial balance is less important now a days. It is assumed that debit and credit columns would be equal and any errors would be rectified automatically by accounting software. However in today’s world, trial balances are used by many companies for accounting and auditing purposes. Organizations who wish to disclose ledger balances prior to adjustments or ledger balances after proposed adjustments either publicly or for internally purposes maintain such statements.

Limitations of Trial Balance Accounting:

Primary objective of trial balance accounting is to match debit and credit balances. This does not mean trial balance statement is error free. Below errors may still appear in it.

Wiki Finance pedia - e-learning course on Accounting Wikipedia Chapter - Learn about Trial Balance1. Error in recording transaction: Error will not be detected; In-case incorrect amount is entered on debit as well as credit side of journal entry. For example: Machinery purchased for Rs.40,000/- was incorrectly mentioned as Rs.4,000/-.

2. Error of omission: It will not be able to find error in-case if any of the transaction is missing. Excluding any transaction will still leave credit and debit balance as in-balanced.

3. Error of Principle: Suppose, correct amount added to accurate side (debit / credit) of the account but posted to account with different type. In such scenario, there won’t be any affect on totals of trial balance. For example: Travelling expenses (account type: expenses) are wrongly debited to stock account (account type: assets).

4. Error of Commission: Debit and credit balance will remain unaffected in-case if transaction is posted to wrong account but of same types. For example: Account Payable A/c was incorrectly credited to Machinery A/c instead of Buildings and Assets A/c.

5. Error of Reversal: If any of the golden rules of posting entries are applied incorrectly. Under such circumstances balances will still be in-balance. For example: If the correct entry is Machinery A/c debit to Account Payable A/c credit instead of Account Payable A/c debit to Machinery A/c credit still balances of both the sides will remain same.

Example of Trial Balance Accounting:

Xyz India Pvt. Ltd.
Trial Balances as of current assessment year.
List of Ledger AccountsDebitCredit
Share Equity Capital A/c25,000
Machinery A/c35,000
Furniture & Fixture A/c10,000
Land and Buildings A/c75,000
Creditor A/c90,000
Debtors A/c4,000
Cash A/c1,000
Sales A/c20,000
Cost of good sales A/c7,000
General & Administration Expense A/c3,000

- Tutorial Course - Basics of Accounting for Beginners -

» e-Learning Chapter 1: What is Accounting and objectives of Accounting?

» e-Learning Chapter 2: What is Assets and Current Assets?

» e-Learning Chapter 3: What is Liability and Current Liabilities?

» e-Learning Chapter 4: What is Revenue and Expenses?

» e-Learning Chapter 5: What are the Types of Accounts?

» e-Learning Chapter 6: What is a Single Entry System?

» e-Learning Chapter 7: What is Double Entry Accounting System?

» e-Learning Chapter 8: What are the steps involved in Accounting Process Cycle.

» e-Learning Chapter 9: What are Journal Entries? Format and Examples.

» e-Learning Chapter 10: What Is a General Ledger? Format with Example.

» Currently Reading: What is a Trial Balance? Examples and Limitations.

» e-Learning Chapter 12: What is a profit and loss statement or Income Statement?

» e-Learning Chapter 13: What is a Balance Sheet? Definition, Format and Examples.

» e-Learning Chapter 14: What are the Different Types of Accounting Methods in Bookkeeping.

» e-Learning Chapter 15: Accounting Quiz – Basics of Accounting for Beginners Module.

If you liked this featured segment, Dont forget to give reviews !
What is a Trial Balance? Definition, Examples and Limitations of bookkeeping5/5 (100%) 4 votes

Did you find apk for android? You can find new Free Android Games and apps.

About Sejal Shah

Its my passion to provide valuable information over internet to people. I provide knowledgeable information to various groups via various articles. I choose this profession with intension to make people aware of facts and give proper guidance in life.

Leave a comment

Your email address will not be published. Required fields are marked *