Purpose of Preparing Trial Balance

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Many economic transactions take place on a daily basis in business, which is managed by the accounting process, which includes the stages of identifying, measuring, recording, classifying, etc. transactions. The possibility of errors/mistakes increases in the initial stage of the accounting process because it is very difficult to identify the transactions, measure them, record them in the respective books, and then classify them at their respective places. That is why the trial balance is prepared after the classification stage of the accounting process is completed.

Trial balance is prepared using data from the classification stage of the accounting process. To prepare the trial balance, the balances of all the accounts are taken and entered in the balance column of the trial balance. The debit balance is entered in the debit balance column and the credit balance is entered in the credit balance column, then both columns are added, if the sum of both columns is equal then the trial balance is considered correct. Trial balance is not a part of the accounting process so whether to prepare it or not depends entirely on the business.

Purpose of Preparing Trial Balance

Following are the purpose of preparing trial balance:

1. To Check Arithmetic Error:

Trial balance is prepared to check arithmetic errors as arithmetic errors may occur while using the accounting process. Trial balance has two balance columns one of which is the debit balance column, and the other is the credit balance column, if the sum of both columns is equal then it is considered that there are no arithmetic errors till the classification stage of the accounting process.

2. To Check Double Entry System:

The accounting system is based on double entry system which means that every transaction has a debit side and a credit side. Sometimes the double entry system is not followed properly while managing the transactions, this can happen due to many reasons, that is why trial balance is prepared to check the double entry system till the classification stage of the accounting process. If both the balance columns of the trial balance match each other then it is considered that the double entry system has been properly followed.

3. To Prepare Account Balance Statement:

Another purpose of preparing trial balance is to prepare an account balance statement or list. The balance of all accounts is recorded in this. The debit balance is recorded on the debit side and the credit balance is recorded on the credit side. This helps in understanding which account balance is debit and which account balance is credit. With its help, management can make many types of decisions.

4. To Prepare Final Accounts:

After preparing the trial balance, final accounts are prepared so that if there is any arithmetic error, double entry error, etc., it can be detected and rectified so that there is no hindrance in the further process. If double entry system, accounting rules, etc. have not been used correctly then it may be revealed in the trial balance. Note that whether or not to prepare a trial balance depends on the business. If a business does not prepare a trial balance, final accounts are prepared directly.

5. To Compare:

Another purpose of preparing a trial balance is to compare data as it provides a summary of all account balances. Management can compare the data in many ways such as different periods, nature of transactions, etc. After comparing the data of trial balance, a variety of results can be obtained which can be used in further operations of the business.

Read Also:

• What is trial balance? Meaning, features, and more.
• Advantages of Preparing Trial Balance
• Format of Trial Balance

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