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   1. What is a trial balance?

Trial balance is simply the list of ledger accounts’ balances. There are two main sides or parts of a trial balance, one for debit balances and other for credit balances of ledger accounts (or accounts). Both sides need to be equal.

After a specific period of time, business prepares trial balance to check their ledger accounts balances are arithmetical correct or to answer the question that didn’t we make any mathematical mistakes while posting entries in the ledger accounts? A trial balance is not only used to check the mathematical mistakes in accounts but it is also useful for the preparation of financial statements such as income statement, balance sheet and cash flow statement since it provides a list of all ledger accounts balances at one place which makes the preparing of financial statements easier than typically it would be.

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   2. What is the procedure of preparing a trial balance?

Draw up the three major columns of the trial balance. There can be more than three columns, number of columns vary from one business to another.

Step No. 1: Look up the closing balances of all ledger accounts and collect them

Step No. 2: Post the closing balances to trial balance. Debit balances are entered in the debit column of trial balance and credit balances will go to the credit column of the trial balance along with their accounts names which are placed in description column

Step No. 3: We are done!

With the emergence of IT and development of accounting software, accounting is mostly done on computers and there is no need to draw up a trial balance manually. Computer software can automatically prepare a trial balance when you post transactions in the ledger accounts without making any mistake

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   3. What is the difference between a trial balance and ledger accounts?

An account is a record of financial transactions of a specific item (item such as purchases, sales, commission etc) and contains the detail of transactions. In accounting, accounts are used to collects and record financial information. Examples of accounts are payable or creditor accounts, receivable or debtor accounts, cash accounts, bank accounts etc.

Record of debtors and creditors is maintained in debtor accounts and creditor accounts, sales of goods are recorded in sales account and so on

On the other hand, a trial balance merely lists down debit and credit closing balances of accounts to check the mathematical accuracy of accounts. Accounts are correctly prepared if debit balances side is equal to credit balances side of a trial balance. Besides this, trial balance is useful in preparing financial statements such as income statement, balance sheet and cash flow statement

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   4. What is the difference between a trial balance and balance sheet?

A Trial balance lists down the debit and credit closing balances of all ledger accounts to check the mathematical accuracy of accounts. The ledger accounts can be associated with incomes, expenses, assets, liabilities and capital

Whereas, a balance sheet is a statement or report that lists down the balances of capital accounts, liabilities accounts and assets accounts to the show the financial position of a business entity at a specific point in time not to check the mathematical accuracy of accounts. A balance sheet is more formally prepared than a trial balance classifying different types of assets and liabilities since it is mostly used by external users such as shareholder, government agencies, lenders or banks etc. Balance sheet must be prepared in accordance with generally accepted accounting principles (GAAP)

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   5. How can we make the debit and credit sides of a trial balance equal if they appear to be unequal?

Follow these steps

Step No. 1: Check that total of debit balances and credit balances have correctly added or accumulated in the trial balance

Step No. 2: Then look for any missing account balance in the trial balance. There is a possibility that we haven’t entered a ledger account balance in the trial balance

Step No.3: If trial balance still seems unequal, start examining ledger accounts one by one. There might be errors in ledger accounts such as we haven’t summed up correctly the balances of ledger accounts or we didn’t post an entry in the ledger account and so on

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   6. What is an adjusted trial balance?

An adjusted trial balance is the List of all debit and credit balances of all ledger accounts or 'T' accounts related to an enterprise or business after making the adjusting entries. Such a trial balance is generally used as first step in preparing financial statements or final accounts and trial balance used to prove the total credit balance is equal to the total debit balance of ledger accounts or accounts (the word account is frequently used to refer to ledger or 'T' account)

In other words, an adjusted trial balance is prepared after passing the adjusting entries or a trial balance that encompasses the adjusting entries such as accrued revenue, accrued expense, prepared expenses etc

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   7. What is the difference between an unadjusted and an adjusted trial balance?

An adjusted trial balance is the List of all debit and credit balances of all ledger accounts or 'T' accounts related to an enterprise or business after the adjusting entries have been made. Such a trial balance is generally used as first step in preparing financial statements or final accounts and trial balance is used to prove the total credit balance is equal to the total debit balance of ledger accounts or accounts (the word account is frequently used to refer to ledger or 'T' account)

In other words, an adjusted trial balance is prepared after passing the adjusting entries or a trial balance that encompasses the adjusting entries such as accrued revenue, accrued expense, prepared expenses etc

On the other hand, unadjusted trial balance is prepared before passing the adjusting entries. Adjusting entries are journal entries used to allocate revenues and expenses to their appropriate accounting period

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   8. What are the benefits of preparing a trial balance?

Trial balance help in confirming the total debit balances and total credit balances of all ledger accounts are equal. Therefore, it is helpful in checking the arithmetical accuracy of ledger accounts.

Trial balance is used while preparing financial statements such as income statement, balance sheet and cash flow statement since it provides with the summary of all ledger accounts

Since trial balance gives the summary of all accounting record or all ledger accounts, you can verify the financial position and performance of a business by talking a glance at the trial balance

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   9. What errors can cause debit side and credit side of a trial balance unequal?

The most common errors which affect trial balance agreement

Recording only one aspect of a transaction such as debiting but not crediting or crediting but not debiting.

For example purchase goods amounts to $200 from Mr. Z. We debited $200 to purchase account but we didn’t credit $200 to Mr. Z account

Wrongly calculating the balance of any account. In other words we haven’t summed up the balance of a ledger account as a result it might have overstated or understated

Debiting more amount and crediting less amount or crediting more amount and debiting less amount of a transaction

For example purchase goods amounts to $200 from Mr. Z. We debited $200 to purchase account but we credited $400 to Mr. Z account as a result there is overstatement of balance by $200

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   10. Are there errors that don’t affect a trial balance agreement?

Different types of errors which don’t affect the trial balance agreement

1. Error of omission
Wherein the full transaction is omitted from the books of accounts. For example sold goods to Mr. Z for $100. We neither entered this transaction in sales account nor have we entered in Mr. Z account

2. Error of commission
Kind of error where we have entered the correct amounts but in wrong person’s account. For example sales of goods to Mr. A was entered in Mr. B account

3. Error of principle
This type of error takes place when an item is entered in wrong head or class of accounts. For example purchase of fixed asset is entered in expenses account or sale of fixed asset such as building is entered in sales account

4. Error of compensation
Errors that cancel the effect of each other. For example we might overstate purchases account by $20 and we can overstate sales account by $20 as well. Since we have added $20 to both debit and credit sides of trial balance, the agreement of trial balance is still intact.

5. Error of complete reversal of entries
These errors occur when we debit and credit the two or more aspects of a transaction wrongly using correct figures or amounts. For example we have received cash $500 from Mr. Z. The correct entry should be Cash=Debit and Mr. Z=Credit but we have recorded as Mr. Z=Debit and Cash=Credit. However, the trial balance appears to be balance.

6. Error of original entry
Entering wrong original figure or amount in accounts. For example purchase of $100 was entered as $200 in the books of accounts. A $30 sale to Mr. Z was wrongly entered as $50 in sales account and Mr. Z account

7. Error of transition
Error of transition can be defined as switching the sequence of digits of amount or figure of a transaction. For example sales amounts to $123 were entered as 321. A purchase of equipment worth $72 was entered as $27 in equipment account and cash account respectively.

This is one of the most common errors and it’s very hard to trace. When both debit and credit of a transaction is affected by the error of transition, trial balance’s debit and credit sides would be equal

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