Learning Materials For Accounting, Management , Finance And Economics.

Sunday, June 27, 2010

Objectives Of Trial Balance

The following are the important objectives of trial balance

1. To Check The Arithmetical Accuracy

Trial balance is based on the double-entry principle of debit equals credit or credit equals debit. As a result, the debit and credit columns of trial balance must always be equal. If they do, it is assumed that the recordings of financial transactions are accurate. Conversely, if they do not, it is assumed that they are not arithmetically accurate. Therefore, one important purpose of preparing trial balance is to provide a check on the arithmetical accuracy of the recordings of the financial transactions.

2. To Help Locate Accounting Errors

Since the trial balance indicates if there is any error committed in the journal and the ledger, it helps the accountant to locate the error because the starting point of locating errors is trial balance itself.

3. To Summarize The Financial Transactions

A business performs several numbers of financial transactions during a certain period of time. The transactions themselves can not portray any picture of the financial affairs of the business. For that purpose, a summary of the transactions has to be drawn. The trial balance is prepared with a view to summarize all the financial transactions of the business.

4. To Provide The Basis For Preparing Final Accounts

Final accounts are prepared to show profit and loss and the financial position of the business at the end of an accounting period. These accounts are prepared by using the debit and credit of all ledger accounts. Therefore, since the trial balance is a statement of the debit and credit balances of the ledger accounts, it provides the basis for the preparation of the final accounts.