The Role of Trial Balance in Accounting
A trial balance refers to a report that the accountants will generate when an accounting period has ended. It lists the ending balances of all the general ledger accounts. The accountants will use the trial balance to make sure that the sum of debits and credits are the same, and this indicates that all the journal entries are balanced and this ensures that accuracy of financial statements the company generates.
Usually, the auditors will ask for the year-end trial balance when they conduct audits. Hence, you can see from here that the trial balance is a crucial document for your company. Hence, if you have been doing the accounting tasks by yourself but you don’t actually know how you should do it correctly, you should get assistance from an accounting firm in Johor Bahru and let the professionals prepare these important financial statements for you.
In some cases, errors may still occur in the accounts (Also see 3 Most Common Accounting Mistakes) on the trial balance even though the sum of debits and credits on that document are the same. For example, you may have entered a debit to an incorrect account, but this will not affect the total of debits shown in your trial balance. As an instance, you received a RM2,000 supplier’s invoice, and you record this transaction by debiting the utility expense account and crediting the accounts payable account. The correct entry should be a debit to the supplies expense account, which means that you have recorded the debit in the wrong account. However, in the trial balance, the sum of debits and credits will still equal to each other.
When you print out the trial balance for the first time, it is an unadjusted trial balance. Then, you should find out and make adjustments (Also see What Are Accounting Adjustments) to correct any mistakes to that the company’s financial statements will comply with the applicable accounting framework. After making the necessary adjustments, the document is called an adjusted trial balance. Usually, you need to print it out, store it in your year-end book and archive it. The document becomes a post-closing trial balance after you have closed the accounting period.
A trial balance is a document that you need to compile by using the accounting records. However, as you may make adjusting entries after reviewing it, you may say that accounting for trial balance includes the process of making adjustments to change the unadjusted trial balance to the adjusted trial balance.
If the subsidiaries report their results to their parent company, the parent company may ask for the ending trial balance from all subsidiaries as it needs the documents for the preparation of consolidated results for the organisation as a whole.
Most of the in-house accountants would prefer the general ledger as it displays the transaction details, which constitutes the ending balance. These details help them in understanding the events that have occurred in an account in a particular accounting period. Thus, it is easier for them to do the research and find out mistakes that are likely to happen.