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What is a Trial Balance?

by Team Goseeko

A ledger is created when there are multiple entries in different accounts. A Trial Balance is to take all the ledger balances and display them on one worksheet like a specific date.

To understand this, you first need to know the following:

1.     Double-entry bookkeeping – Firstly it records two entries for a single transaction that is essentially equal and opposite

2.     Journal- Second all transactions recorded in the double-entry bookkeeping system

3.     Ledger – TO sum up a summary of all journals of similar nature is prepared.

Trial Balance Example

Let’s say you buy a book for Rs. 1000 with credit. Now we have to receive the book and pay for it. Therefore, this transaction has two activities.

  1. Buy a book
  2. Get credit from the seller

Therefore, in accounting terms, recording this transaction separately into two activities is a double-entry bookkeeping system for bookkeeping.

Concept of Trial Balance

Suppose you want to record all your activities in your diary. Summarize your diary at the end of the month and categorize it into various categories. Then create a sheet and divide the categories productively / unproductively, that’s exactly what businesses do.

Firstly, transaction records will include the journal entries.

Secondly, the ledger summarizes and classifies them. Moreover creating worksheets and classifying ledgers.

Additionally, Trial Balance is a sheet that records all ledger balances classified as debits and credits, a typical one has the names of ledgers and balances.

Non Detectable Errors in Trial Balance

Trial balances can track the mathematical inaccuracy of your general ledger. However, there are some errors that this report cannot detect.

Omission Error

Omission error are transactions that are entered into the system.

Original input Error

Double-entry bookkeeping transactions contain incorrect amounts on both sides.

Cancellation Error

Double-entry bookkeeping is entered with the correct amount, but the debited account is credited and the credited account is debited.

Principle Error

When the transaction entered violates the basic accounting principles, it is known as Principle Error.

For instance, the amount entered was correct and the appropriate side was selected, but the account type was incorrect (for example, an expense account instead of a debt account).

Commission Error

The transaction amount is correct, but the debit or credit account is incorrect.

Lastly, it is similar to the principle error above, but fee errors are usually the result of oversight, and principle errors are the result of a lack of knowledge of accounting principles.

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