After posting journal entries from journals to general ledger, next step in preparing financial statements is the trial balance. Trial balance shows debit and credit totals for every ledger account. Remember that trial balance does not ensure the accuracy of debit and credit entries because there may be some errors that trial balance does not find out.
(a) Trial balance can reveal the following erors:
- Errors in Extraction of Trial Balance
Debit balance in the General Ledger having been entered in the Credit column of the Trial Balance and vice versa.
Balance omitted in extracting list of Debits and Credits
- Errors in computation of the balances of the accounts
- Errors of transportation of figures e.g. N18 or N81 or N7.81 for N1.87.
- Non-correspondence of debit and credit entries by omission of one side, both entries on one side or difference in amount between entries.
(b) Trial balance can not reveal the following errors:
These are errors that will not be revealed by the trial balance. That is errors that still exist despite the fact that both credit and debit sides of the trial balance agree with each other.
The trial balance is composed of following components:
Date: month, day, year
Account title: account name
Totals: debit and credit totals for each of the ledger account
After reading this article you will be able to:
- Understand the use of debits and credits
- Record transactions in the general journal
- Post journal entries to the general ledger
- Prepare a trial balance
- Record adjustments at the end of an accounting period
- Prepare an adjusted trial balance
- Prepare financial statements using an adjusted trial balance
- Post Closing Trial Balance