Whatever report is prepared in business, it definitely has some benefit because no report in business is prepared without any benefit, the same concept is applicable in trial balance also. Transactions in business are managed by the accounting process. When the accounting process is used, there is still a possibility of errors occurring because identifying, measuring, recording transactions and then classifying them into accounts is a challenging task.
Trial balance is prepared to detect errors occurring in the accounting process as its concept helps in detecting accounting errors. It is prepared after the classification stage of the accounting process. If any errors have occurred up to this stage, they can be located here. Preparing a trial balance requires the balances of all related accounts. Even after preparing it, there is no guarantee that all accounting errors will be detected with its help.
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Advantages of Preparing Trial Balance
Preparing trial balance has the following advantages:
1. Arithmetic Error Checking:
The main advantage of preparing trial balance is that by preparing it, arithmetical error is checked. If any error has occurred while recording transactions, classifying etc., it can be detected after preparing the trial balance. If both sides of the trial balance match, it is considered that no accounting errors have occurred so far in the accounting process.
2. Double Entry Checking:
The accounting system is based on double entry system as all transactions have a debit side and a credit side. Another advantage of preparing trial balance is that with its help the double entry system is checked. If the double entry system is followed properly then both sides of the trial balance match each other but other things should remain equal.
3. Summary:
Another advantage of preparing a trial balance is that it provides a summary of account balances. This summary helps to understand which account balance is debit and which account balance is credit. By using this the management can make various types of decisions like whether to increase purchases or not, which expenses to reduce or increase, etc. The trial balance can be viewed as a mini balance sheet.
4. Help in Final Account:
Preparing the trial balance helps in the preparation of final accounts because all the ledger account and cash book balances are shown in the trial balance and if there are any accounting errors then it is detected here. Businesses that prepare trial balance prepare final accounts after the trial balance is prepared and businesses that do not prepare trial balance prepare final accounts directly.
5. Help in Compare:
Another advantage of preparing the trial balance is that it makes it easier to compare the data because the trial balance is prepared from time to time thereby providing data for different periods of time. Using data from different times, comparisons can be made in many ways and appropriate decisions can be taken accordingly for the future.
6. Help in Planning:
Another advantage of preparing trial balance is that preparing it helps the management in planning because good planning is done only when it is based on data. Preparing trial balance provides data to the management from which the management can prepare various types of related plans. Trial balance data is fresh, making it easier to plan better.
Reas Also:
QNA/FAQ
Q1. Does trial balance help management in planning?
Ans: Yes, trial balance help management in planning as it provides a summary of account balances.
Q2. Does a trial balance provide a summary of account balances?
Ans: Yes, trial balance provides a summary of account balances.
Q3. Does trial balance help in preparing final accounts?
Ans: Yes, trial balance help in preparing final accounts.
Q4. Is the trial balance prepared after the transactions have been classified?
Ans: Yes, trial balance is prepared after classifying the transactions.
Q5. Write the advantages of preparing trial balance.
Ans: Following are the advantages of preparing trial balance:
1. Preparing trial balance checks the arithmetic errors.
2. Preparing trial balance checks the double entry system.
3. Preparing trial balance provides a summary of account balances.
4. Preparing trial balance helps in preparing final accounts.
5. Preparing trial balance helps in comparing data.
6. Preparing trial balance helps in planning.
