Trial balance - Wikipedia

A trial balance is a list of all the general ledger accounts (both revenue and capital) contained in the ledger of a business. This list will contain the ... Trialbalance FromWikipedia,thefreeencyclopedia Jumptonavigation Jumptosearch PartofaseriesonAccounting Historicalcost Constantpurchasingpower Management Tax Majortypes Audit Budget Cost Forensic Financial Fund Governmental Management Social Tax Keyconcepts Accountingperiod Accrual Constantpurchasingpower Economicentity Fairvalue Goingconcern Historicalcost Matchingprinciple Materiality Revenuerecognition Unitofaccount Selectedaccounts Assets Cash Costofgoodssold Depreciation /Amortization Equity Expenses Goodwill Liabilities Profit Revenue Accountingstandards Generally-acceptedprinciples Generally-acceptedauditingstandards Convergence InternationalFinancialReportingStandards InternationalStandardsonAuditing ManagementAccountingPrinciples Financialstatements Annualreport Balancesheet Cash-flow Equity Income Managementdiscussion Notestothefinancialstatements Bookkeeping Bankreconciliation Debitsandcredits Double-entrysystem FIFOandLIFO Journal Ledger /Generalledger Taccounts Trialbalance Auditing Financial Internal Firms Report Peopleandorganizations Accountants Accountingorganizations LucaPacioli Development History Research Positiveaccounting Sarbanes–OxleyAct Misconduct Creative Earningsmanagement Erroraccount Hollywood Off-balance-sheet Twosetsofbooks vte Atrialbalanceisalistofallthegeneralledgeraccounts(bothrevenueandcapital)containedintheledgerofabusiness.Thislistwillcontainthenameofeachnominalledgeraccountandthevalueofthatnominalledgerbalance.Eachnominalledgeraccountwillholdeitheradebitbalanceoracreditbalance.Thedebitbalancevalueswillbelistedinthedebitcolumnofthetrialbalanceandthecreditvaluebalancewillbelistedinthecreditcolumn.Thetradingprofitandlossstatementandbalancesheetandotherfinancialreportscanthenbeproducedusingtheledgeraccountslistedonthesamebalance. Contents 1History 2Usage 3Limitations 4References History[edit] ThefirstpublisheddescriptionoftheprocessisfoundinLucaPacioli's1494workSummadearithmetica,inthesectiontitledParticularisdeComputisetScripturis.Althoughhedidnotusetheterm,heessentiallyprescribedatechniquesimilartoapost-closingtrialbalance.[1] Usage[edit] Thepurposeofatrialbalanceistoprovethatthevalueofallthedebitvaluebalancesequalsthetotalofallthecreditvaluebalances.Ifthetotalofthedebitcolumndoesnotequalthetotalvalueofthecreditcolumnthenthiswouldshowthatthereisanerrorinthenominalledgeraccounts.Thiserrormustbefoundbeforeaprofitandlossstatementandbalancesheetcanbeproduced.Hencetrialbalanceisimportantincaseofadjustments.Wheneveranyadjustmentisperformedruntrialbalanceandconfirmifallthedebitamountisequaltocreditamount. Thetrialbalanceisusuallypreparedbyabookkeeperoraccountantwhohasuseddaybookstorecordfinancialtransactionsandthenpostthemtothenominalledgersandpersonalledgeraccounts.Thetrialbalanceisapartofthedouble-entrybookkeepingsystemandusestheclassic'T'accountformatforpresentingvalues. Limitations[edit] Atrialbalanceonlychecksthesumofdebitsagainstthesumofcredits.Thatiswhyitdoesnotguaranteethattherearenoerrors.Thefollowingarethemainclassesoferrorsthatarenotdetectedbythetrialbalance. Anerroroforiginalentryiswhenbothsidesofatransactionincludethewrongamount.[2]Forexample,ifapurchaseinvoicefor£21isenteredas£12,thiswillresultinanincorrectdebitentry(topurchases),andanincorrectcreditentry(totherelevantcreditoraccount),bothfor£9less,sothetotalofbothcolumnswillbe£9less,andwillthusbalance. Anerrorofomissioniswhenatransactioniscompletelyomittedfromtheaccountingrecords.[3]Asthedebitsandcreditsforthetransactionwouldbalance,omittingitwouldstillleavethetotalsbalanced.Avariationofthiserrorisomittingoneoftheledgeraccounttotalsfromthetrialbalance(butinthiscasethetrialbalancewillnotbalance). Anerrorofreversaliswhenentriesaremadetothecorrectamount,butwithdebitsinsteadofcredits,andviceversa.[4]Forexample,ifacashsalefor£100isdebitedtotheSalesaccount,andcreditedtotheCashaccount.Suchanerrorwillnotaffectthetotals. Anerrorofcommissioniswhentheentriesaremadeatthecorrectamount,andtheappropriateside(debitorcredit),butoneormoreentriesaremadetothewrongaccountofthecorrecttype.[5]Forexample,iffuelcostsareincorrectlydebitedtothepostageaccount(bothexpenseaccounts).Thiswillnotaffectthetotals.Thiscanalsooccurduetoconfusioninrevenueandcapitalexpenditure. Anerrorofprincipleiswhentheentriesaremadetothecorrectamount,andtheappropriateside(debitorcredit),aswithanerrorofcommission,butthewrongtypeofaccountisused.Forexample,iffuelcosts(anexpenseaccount),aredebitedtostock(anassetaccount).[3]Thiswillnotaffectthetotals. Compensatingerrorsaremultipleunrelatederrorsthatwouldindividuallyleadtoanimbalance,buttogethercanceleachotherout.[3] References[edit] LibraryresourcesaboutTrialbalance Resourcesinyourlibrary ^MichaelChatfield;RichardVangermeersch(5February2014).TheHistoryofAccounting(RLEAccounting):AnInternationalEncyclopedia.Routledge.pp. 587–.ISBN 978-1-134-67545-6. ^AATFoundation-CourseCompanion-Units1-4(Fourth ed.).BPPProfessionalEducation.April2004.p. 411.ISBN 0-7517-1583-2. ^abcMohammedHanif(1May2001).ModernAcc.VolI,2E.TataMcGraw-HillEducation.p. 4.15.ISBN 978-0-07-463017-4. ^RiadIzhar;JanetHontoir(2001).Accounting,CostingandManagement.OxfordUniversityPress.pp. 61–62.ISBN 978-0-19-832823-0. ^ArunKumar;RachanaSharma(1January2001).Auditing:TheoryandPractice.AtlanticPublishers&Dist.pp. 20–.ISBN 978-81-7156-720-1. 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