Trial Balance is a statement with all closing balances of ledger accounts on a certain date. In other words preparing the Trial Balance is the first step towards the preparation of financial statements.
Usually, the Trial Balance is prepared at the end of an accounting period that assists us in easy drafting of other financial statements.
First of all, segregate the Ledger balances into debit balance and credit balances.
As per the accounting rules, ssets and expense accounts will appear on the debit side of the trial balance. Liabilities, capital and income accounts will appear on the credit side.
Enter all the segregated and extracted debit and credit balances of the ledger accounts into trial balance.
Thus, the total of all debit balances appearing in the trial balance should be equal to the sum of all credit balances.
If the totals of debit balances and credit balance does not match, then you need to check the ledger balances again.
I have created a Trial Balance Template which will help you easily prepare and find the difference. This template can be helpful to Accounts Assistants, Accountants, and Auditors etc.
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Let’s discuss the contents of Trial balance Template.
Template Contents – Trial Balance
This template consists of two sections:
- Header Section
- Data Input Section
1. Header Section
This section consists of heading of the sheet with the date of preparation. Furthermore, on the right-hand side you can see the difference between of Debit and Credit amounts.
Formula applied here is =SUMPRODUCT(SUM(B5:B89)-SUM(C5:C89))
2. Data Input Section
This section consists of accounting heads from the Ledger. I have included most of them, but if required you can change it as per your need. The accounting head are as follow:
Cash In Current A/C
Cash In Savings A/C
Bad Debts Reserve
Advance Paid Expenses
Deposits with Utility Companies
Depreciation – Vehicles
Furniture and Fixtures
Depreciation – Furniture and Fixtures
Depreciation – Equipment
Depreciation – Buildings
Other Intangible Assets
Sales Tax Payable
Other Taxes Payable
Accrued Income Taxes
Equity Share of Owner
Owner’s Drawing Account
Additional Paid-In Capital
Sales Returns and Allowances
Income on other Investments
Gain / Loss on Sale of Assets
Purchase Returns and Allowances
Cost of Goods Sold – Materials
Labor – Cost of goods sold
Direct Expenses – Cost of Goods Sold
Indirect Expenses – Cost of Goods Sold
Bad Debt Expense
Credit Card Fees Expense
Dues and Subscriptions
Permits and Licenses
The trial balance will ensure us that the debits are equal to the credits.
Please note that just because our trial balance balances, it does not mean that the accounts are correct or that mistakes haven’t occurred.
There can be entries that we have missed or items we might have entered in the wrong account.
For example, you might have increased the wrong asset account at the time of purchase. Sometimes, we decrease the wrong expense account while making a payment or the transactions is entered twice.
Thus, you need to keep in mind that the trial balance is not the final document of accounts.
Once the trial balance is prepared, the next step is to prepare other financial statements like Profit and Loss Account and Balance Sheet.
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