Purpose of Trial Balance

It is essential to stay on top of your stats as a small business owner. This ensures that the accounts are in order, but there may be some discrepancies that leave you scratching your head. A trial balance is used to aid in the discovery of the root cause. It is easy to lose track of our incomings and outgoings when we are busy running our businesses. The trial balance's objective is to identify and remedy errors that could harm your organisation.  A trial balance is a report that shows the balances of a company’s entire general ledger accounts at a specific point in time. It includes accounts for all important accounting elements, including assets, liabilities, equity, income, expenses, gains, and losses. Our Melbourne bookkeeper experts are used trial balance to determine the balance of debits and credits entries from the general ledger transactions at a given moment in time.

The trial balance is prepared to make the appropriate adjusting entries to the general ledger in addition to detect errors. It is recalculated by the bank reconciliation team after the correcting entries have been posted to ensure that the overall debits and credits remain balanced. It is not a legally binding financial statement. It is normally used within the organisation and not shared with anybody else.

Trial Balance Include in Bookkeeping for Small Business

The totals of all general ledger accounts are shown in a trial balance. Each account should have a unique account number, ultimate debit/credit amount, and account description. It should also provide the end date of the accounting period for which the report is being prepared. The key distinction between the general ledger and the trial balance is that the general ledger shows all transactions by account, but the trial balance only shows account totals, not individual transactions. At last, adjustment entries are reflected on a trial balance if they were made. It should exhibit the values prior to the adjustment, the adjusting entry, and the balances later than the adjustment in this situation.

What is the Purpose of a Trial Balance?

A trial balance is a straightforward accounting report that lists each account's name as well as the balance recorded in the general ledger.

There are two columns for account balances: debits and credits. The report clearly reveals whether your debits and credits are equal to one another at a glance.

There is something wrong with your numbers if your debits and credits don't match. It is possible that the inaccuracy arises from wrongly entered debits or credits.
Our bank reconciliation professionals’ goal is to detect and correct faults before they become a problem.

At the end of each reporting period, trial balance reports should be prepared. It not only gives you confidence that your accounts are in order, but it also protects you from auditors and potential penalties.

What Happens After the Trial Balance?

A balanced trial balance is not only pleasing to the accountant's ears, but also reflects the health of your company. It is also the foundation for the three basic financial statements that every business requires:

·        Cash Flow Statement

·        Balance Sheet

·        Income Statement

All of these financial documents provided by the Melbourne bookkeeper team will help you make better company decisions, such as whether to cut spending or investigate why sales are not picking up in a particular period.

Undetectable Errors in a Trial Balance

A trial balance can reveal the general ledger's arithmetic error. There are, however, a few flaws that cannot be detected are discussed by our bookkeeping for small business experts are:

Error of Omission: The transaction was not entered into the database.

Error of Original Entry: On both sides of the double-entry transaction, the sums are incorrect.

Error of Reversal: When the correct amounts are entered into a double-entry transaction, but the account to be debited is credited and vice versa.

Principle Error: The inputted transaction is in violation of accounting's basic rules. For instance, the amount entered was right, and the appropriate side was selected, but the account type was incorrect (e.g., expense account instead of liability account).

Commission Error:  The amount of the transaction is right, but the account that was debited or credited is incorrect. Commission error is related to principle error, however, commission error is frequently the result of oversight, whereas principle error is the result of a lack of understanding of accounting principles.