The Trial Balance (Cambridge (CIE) O Level Accounting)

Uses & Limitations of a Trial Balance

What is a trial balance?

• A trial balance is a statement which lists all accounts and their balances on a particular date

  • Each balance is placed either in the debit column or in the credit column

• The totals of the debit and credit columns are calculated

  • The totals should be equal

• A trial balance is not part of the double entry system

• The balance for the inventory account will always be the opening balance

  • This is because the current inventory is contained within the purchases account

  • This is dealt with once the balances are transferred to the income statement

What are the uses of a trial balance?

• A trial balance is used to check for arithmetic errors in the ledger accounts

  • If the balance of a ledger account has been miscalculated, it is likely that the totals in the trial balance will not be equal

• Preparing a trial balance helps with the preparation of financial statements

  • All the balances are in one place

What are the limitations of a trial balance?

• Not all errors are identified by a trial balance

  • The totals may be equal despite there being errors

• You will need to use other measures to locate errors

  • Such as bank reconciliation statements and control accounts

Preparing a Trial Balance

How do I prepare a trial balance?

• You will likely be given a list of accounts and balances

• STEP 1
  Identify whether each account should have a debit or a credit balance

  • The table below gives a summary of the different accounts

• STEP 2
  Check that the total of the debits is equal to the total of the credits

• STEP 3
  Write each account in the trial balance and put the balance in the correct column

• STEP 4
  Total each column

How do I amend a trial balance?

• You could be given a trial balance which contains errors

  • The balances could also be in the wrong columns

• STEP 1
  Correct the errors to find the correct balances for each account

• STEP 2
  Double-check whether each account has been correctly identified as a debit or a credit

• STEP 3
  Complete a corrected trial balance

  • The totals will be equal