why is trial balance important?
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Checking Arithmetical Accuracy: It means that trial balance is used to verify actual amount entered in correct side of current account while migrating the figures from various ledger books like purchase book, sales book, cash book, etc. Trial Balance aside from general ledger accounts is also useful to check accuracy of special purpose accounting books.Assist in Preparing Financial Statements: Profit and Loss Account, Balance Sheet and Cash Flow Statement needs to be prepared at the end of each accounting year. The balances of all the ledger accounts used to prepare financial statements are already available in the trial balance and hence, it makes the preparation and analysis of financial statement easier.Assist in Rectifying errors: The debit total of trial balance must equal to credit total of trial balance. This checks the arithmetical accuracy of ledger postings. If this does not happen, it will make accountant to find and rectify the error. Accountants therefore feel relieved when the trial balance debit totals and credit totals match.Assist in Adjustments: Adjustment accounts like prepaid expenses, outstanding liabilities, closing stock, etc needs to be prepared during preparation of trial balance. This assists in making adjustments only relevant to current accounting year. Businesses prepare adjustment accounts generally at the end of accounting year. However, there is no restriction to open these adjustment accounts as they occur.Assist in Comparative Analysis: Preparation of Trial Balance helps to compare balances of the current year with past year balances along with peer analysis. This helps the business to take important decisions regarding income, expenses, production costs, etc. It helps to recognize the trend in the business and take actions wherever necessary.
Checking Arithmetical Accuracy: It means that trial balance is used to verify actual amount entered in correct side of current account while migrating the figures from various ledger books like purchase book, sales book, cash book, etc. Trial Balance aside from general ledger accounts is also useful to check accuracy of special purpose accounting books.Assist in Preparing Financial Statements: Profit and Loss Account, Balance Sheet and Cash Flow Statement needs to be prepared at the end of each accounting year. The balances of all the ledger accounts used to prepare financial statements are already available in the trial balance and hence, it makes the preparation and analysis of financial statement easier.Assist in Rectifying errors: The debit total of trial balance must equal to credit total of trial balance. This checks the arithmetical accuracy of ledger postings. If this does not happen, it will make accountant to find and rectify the error. Accountants therefore feel relieved when the trial balance debit totals and credit totals match.Assist in Adjustments: Adjustment accounts like prepaid expenses, outstanding liabilities, closing stock, etc needs to be prepared during preparation of trial balance. This assists in making adjustments only relevant to current accounting year. Businesses prepare adjustment accounts generally at the end of accounting year. However, there is no restriction to open these adjustment accounts as they occur.Assist in Comparative Analysis: Preparation of Trial Balance helps to compare balances of the current year with past year balances along with peer analysis. This helps the business to take important decisions regarding income, expenses, production costs, etc. It helps to recognize the trend in the business and take actions wherever necessary.
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trial balance is not that importent in accountancy, these are just made to check the position of the business
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