The trial balance is a list of all the balances, debtors and creditors of all accounts of the ledger to check for equality, adding them in separate columns; This is so as a consequence of accounting based on double entry derives its name from the fact that the recording of all operations requires the entry of debits and credits of an operation that add up to the same amount, it is obvious that the total debits of all accounts must equal total credits.
It serves to locate errors within an identified period of time and makes it easy to find them in detail and correct them. It is a very convenient list of the account balances that will be used in preparing the financial statements. It is useful for checking the mathematical accuracy of the ledger and providing the accountant with information to prepare the periodic financial statements, as it is much easier for him to use the balance data than taking it directly from the ledger.
Concept
The following bibliographic review will be useful to have a broader vision of what the balance or trial balance is:
The trial balance is a state that arises from the major. It is a record of the information that it provides and that guarantees that all the transcripts originated in the Journal have been made, based on the principles of double entry. The summation of all debits and credits is made separately; both columns must be equal. In this way, it is verified that the transfer of the journal entries to the Major was carried out correctly. It includes all the accounts of the Major and expresses the sum of all the debits and credits of each account and also their balances. It is used to check whether the transfer of the Journal to the Mayor has been made correctly. It is the starting point of the balance sheet. (Greco, p.74)
The Trial Balance of Sums and BalancesIt is an instrument that, as its name indicates, serves to verify the debit and credit amounts and the debit and credit balances of the accounts used during a given period. Likewise, it usually contains the accumulated amounts and balances from previous periods. In order to prepare it, it is necessary to add up all the entries made during the desired period, calculating the sums and balances of debtors and creditors of all the accounts used by a company. Depending on the intended objective, a Trial Balance of Sums and Balances can refer to all the accounts used or a part of them. For example, a Trial Balance could be prepared that includes only customer accounts, in order to perform an analysis of this particular set of assets. (Alcarria, p.72)
A trial balance is a list of all accounts with their balances - first the assets, then the liabilities, and then the stockholders' equity - taken from the highest. Before computers existed, the trial balance allowed us to corroborate the accuracy because it showed us if the total of charges was equal to the total of credits. Nowadays. The trial balance is a useful summary of all accounts and their balances.
We can carry a trial scale as long as the entries are up to date. The most frequent time to do this is at the end of the accounting period. On a trial balance, the total charges and the total credits must be equal. If they are not, there is a registration error. Computerized accounting systems eliminate almost all errors because they transfer the amounts from the journal to the major as recorded in the journal. However, computers cannot eliminate all errors, because humans sometimes enter the wrong data.
When the accounts do not add up, that is, the total of charges is different from the total of credits, we can detect errors if we calculate the difference between these totals of the trial balance. Then, we will do one or more of the following movements:
- Find if any account is missing from the trial balance. Divide by two the difference between the total charges and the total credits. A charge treated as a credit, or vice versa. doubles the amount of the error Divide the amount of the difference by nine, If we can divide the result just by nine, the error may be a pass-to-the-highest error (example: writing $ 300 instead of $ 30) or a transposition (example: put 561 instead of 516). Computerized systems avoid these types of errors.
Warning: Do not confuse a trial scale with a balance sheet. A trial scale is an internal document, seen only by company owners, managers, and accountants. The company presents its balance sheet, which is a formal financial statement, to the public. (Horngren, pp.50,51)
characteristics
In a trial balance that includes all accounts, the following relationships hold:
- In a period: Total debit amounts = Total credit amounts In a period: Total debit balances = Total credit balances In the accumulated: Total debit amounts = Total credit amounts In the accumulated: Total debit balances = Total credit balances
In addition, the debit and credit sums for the period (or accumulated) must coincide with the sums of the amounts recorded as debits and credits, respectively, from the Journal in the corresponding period (or accumulated). (Alcarria, p.74)
Utility
The general utility of the trial balance is to serve as an informative summary of the accounts and to allow, sometimes, to detect errors.
The detection of numerical square errors (differences in the sums or balances debtors and creditors) was very important when the accounting was carried out manually. At present, the use of computers eliminates this possibility of error.
However, errors that cause conceptually incorrect entries may not be detected since, according to the double entry method, the amounts entered debit and credit must always be the same.
Finally, the Verification Balance of Sums and Balances can serve as the basis for the preparation of the Profit and Loss Account (taking the balances of the income and expense accounts) and the Balance Sheet (taking the balances of the assets and liabilities accounts and equity items). (Alcarria, p.74)
In the following video, Professor Ana Segovia, from UNED, explains how to prepare a balance or trial balance or sums and balances:
Bibliography
- Alcarria Jaime, José J. Financial Accounting I, Universitat Jaume I, 2009. Greco, Orlando. Accounting Dictionary, Valletta Editions, 2007. Horngren, Charles T. Accounting. An Approach Applied to Mexico, Pearson Education, 2004.
