Question

Explain the significance of trial Balance.

About 150 words

Answer 1

Answer:

Usage. The purpose of a trial balanceis to prove that the value of all the debit value balances equals the total of all the credit value balances. If the total of the debit column does not equal the total value of the credit column then this would show that there is an error in the nominal ledger accounts.

Answer 2

The trial balance is made after posting all monetary transactions to the journals and reviewing them on the ledger statements to check whether both debit and credit sides are equal.

Explanation:

Significance of Trial Balance:

1. Ascertain the Arithmetical Correctness of Ledger Accounts: The Trial Balance enables to establish whether posting and other accounting process have been carried out without committing arithmetical errors.
2. To Help Prepare the Final Accounts (Financial Statements): Trial Balance is the list of the Ledger Accounts and Cash and Bank Balances. It is the base document to prepare Financial Statements, i.e., Final Accounts. Revenue and Expense Accounts in the Trial Balance are transferred to Trading and Profit and Loss Account while Assets, Liabilities and Capital Accounts are transferred to the Balance Sheet.
3. Summary of Each Account: Trial Balance is a summary of each Ledger Account. The ledger account may have to be referred only when more detail is required in respect of an account.
4. To Help in Identifying Errors: Trial Balance helps in identifying errors in maintaining Book of Account. It should, however, be kept in mind that it does not disclose, i.e., show all the errors in Book Keeping except the arithmetical inaccuracies.