Trial Balance

Meaning of Trial Balance

A trial balance is a financial instrument that is used to display the list of total debits and credits of the accounts, together with the balance of each of them (whether debtor or creditor). In this way, you can establish a basic summary of a financial statement.

However, we must emphasize that within the scope of accounting and financial management of any company it is necessary to have another series of balance sheets, in addition to the aforementioned verification. Specifically, the preparation of the balance sheets, profit and loss or the abbreviated balance must also be carried out.

Of these three new balance sheets, the first one cited is the one whose clear objective is to show at all times the economic situation that the company in question is going through. The second, as its name indicates, is what is known with whether it has losses or profits. And finally, the abbreviated one, which is the balance sheet that presents the aforementioned gains and losses of an SME (Small and Medium-sized Company).

Abbreviated as TB by AbbreviationFinder, the trial balance reflects the accounting of a company or organization in a certain period. Therefore, this balance sheet acts as the basis for preparing the annual accounts.

The trial balance can also confirm that the company’s accounting is well organized. The balance of sums and balances may be correct and yet include faulty accounting. That would be the case, for example, of someone who has paid one provider but wrote that payment to another. The balance would be correct from the numbers, but not in practice.

In addition to all the above, we cannot overlook the fact that every trial balance must have a clear, concise and easily understandable structure. In this way, it is established that it must always have the following sections for clarity: account, sums owed, sums owed, balance owed and balance owed.

Likewise, once all these elements that give structure to the balance sheet in question have been taken into account, it must be prepared, which is basically made up of two steps: making all the sums for each account of the annotations, both those of duty and those of the credit, and achieve the corresponding balance for the two mentioned sections as well.

That is to say, the preparation of a trial balance begins with the realization of the sums of the annotations of each account, both debits and credits. In the next step, the balance of each account is obtained (the difference between debit and credit). Finally, the amounts and balances obtained are transferred to the balance sheet.

In general, the trial balance is a voluntary document for the employer, although it is recommended so that he can accurately know the financial status of his company without having to drag errors until the preparation of the annual accounts.

Trial Balance

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