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TOPIC: TRIAL BALANCE
CONTENT:
- (i) Meaning of trial balance
- (ii) Uses of trial balance
- (iii) Balances that form the trial balance
- (iv) Formation of trial balance from the ledger
- (v) Identification of Balance Sheet items on the Trial Balance.
Sub topic 1: (i) THE MEANING OF TRIAL BALANCE:
A trial balance is a list of balances extracted from the ledger. It consists of individual debit and credit balances from various ledger accounts.
(ii) USES, FUNCTION OR PURPOSE OF TRIAL BALANCE
- (i) It is used to check arithmetic accuracy of the ledgers
- (ii) It is used as a statement that shows individual credit and debit balance obtained from ledger account with the sum of each set of balances.
- (iii).It helps in identifying computation errors in recording business transaction.
- (iv). it encourages compliance adherence to double entry book keeping rules.
- (v). It act as a trainee manual for the book keeper.
- (vi). It shows the summarized balance in the general ledger or book of account.
- (vii) It is helpful in determining profit or losses of a business.
Sub topic 2: (iii) BALANCES THAT FORMS THE TRIAL BALANCE
The credit and debit balance of each transaction extracted from the ledger are balances that form the trial balance. The trial balance can be prepared in two ways:
- The Traditional way
- The modern or conventional way.
- The traditional format: The traditional format considers the sub-totals of each ledger. .
- The modern or Conventional method:
The modern format considers only the balance of the ledger account, otherwise known as the balance bought forward.
(iv) FORMATION OF TRIAL BALANCE FROM THE LEDGER
Every transaction must either be posted in the credit or debit side of the ledger account. This ledger must be balanced at the end of a stated or given period. To this end it implies that both sides of the account must be equal. The following must be taken into cognizant:
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