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Understanding Trial Balance: Pros and Cons

A trial balance is a financial report showing the closing balances of all accounts in the general ledger at a point in time. It helps ascertain the arithmetical accuracy of books of accounts and aids in summarizing financial transactions and consolidating ledger account balances.

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33 views4 pages

Understanding Trial Balance: Pros and Cons

A trial balance is a financial report showing the closing balances of all accounts in the general ledger at a point in time. It helps ascertain the arithmetical accuracy of books of accounts and aids in summarizing financial transactions and consolidating ledger account balances.

Uploaded by

zohaibtoheed188
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Trial Balance

• A trial balance is a financial report showing


the closing balances of all accounts in the
general ledger at a point in time. Creating a
trial balance is the first step in closing the
books at the end of an accounting period.
Advantages of Trial BALANCE
• 1. It helps to ascertain the arithmetical accuracy of books of accounts
• 2. To facilitate the preparing the financial statements, to finalize the accounts.
• 3. It aids in summarizing the financial transactions & consolidating ledger account balances
• 4. It helps to identify & rectify the errors, omission of transactions
• 5. To ensure that ledger posting is done correctly, extracting ledger account balances
• 6. It helps the auditors to conduct the audit in a smooth & fair manner
• 7. It helps to make the decisions by comparison of ledger account balances with the prior
period.
• 8. To assist in passing adjustment entries, closing entries at the year-end
• 9. To assist the management in the preparation of a financial budget for the upcoming
accounting periods
• 10. It ensures that the total of debit balance are equal to total of credit balances.
Disadvantages of Trial Balance
• 1. It does not prove that all the transactions have been recorded in the books
of accounts. There may be transactions omitted to be recorded in the Journal.
• 2. It cannot assure that the Ledger is correct and reliable. There may be errors
committed in Ledger while posting or balancing the ledger accounts.
• 3. It cannot find the missing journal entries in the Journal because there may
be transactions omitted while recording the transactions.
• 4. It cannot locate the duplicate entries booked in the journal. There may be
entries recorded twice in Journal that cannot be detected.
• 5. It cannot identify the errors committed while recording the transactions in
the books of accounts. These errors may be error of omission, error of
commission, principle errors, or compensating errors.

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