Methods To Prepare Trial Balance
There are three methods in which a Trial Balance can be prepared. Which are as follows :
- Total Method or Gross Trial Balance
- Balance Method or Net Trial Balance
- Compound Method
These could be explained as under:
Total Method or Gross Trial Balance:
Under this method, two sides of the accounts are totaled. The total of the debit side is called the “debit total” and the total of the credit side is called the “credit total”. All the debit totals are entered on the debit side of the Trial Balance while the credit total is entered on the credit side of the Trial Balance
If any particular account has a total on one side, it will be entered either in the debit column or the credit column as the case may be.
- It promotes the arithmetical accuracy of the accounts.
- Extraction of ledger balances is not required at the time of preparation of Trial Balance.
- Preparation of final accounts is not possible.
Net Trial Balance or Balance Method:
Under this method, all the ledger accounts are balanced. The balancing figure may be either a “debit balance” or “credit balance”.
- It helps in the easy preparation of final accounts.
- Time and labour can be saved in constructing a Trial Balance following this method.
- Errors may remain undisclosed irrespective of the agreement of Trial Balance.
Under this method, totals of both the sides of the accounts are written in the separate columns. Along with this, the balances are also written in the separate columns. Debit balances are written in the debit column and credit balances are written in the credit column of the Trial Balance.
- It offers the advantage of both methods.
- Lengthy process and more time consumed in the preparation of a Trial Balance.
Utilities a Trial Balance can Offer and its Interpretation
The benefits of Trial balance could be found in the following:
- It assists in the preparation of financial statements i.e. - Profit and Loss Account and Balance sheet.
- A self-balanced trial balance ensures the arithmetical accuracy of the entries made. If the balances do not tally, then the errors can be found out, rectified and then financial statements can be prepared.
- It acts as a quick reference. So that we can easily find out the balance in any ledger account without actually referring to the ledger.
- If the classification of ledger accounts is systematically done in the trial balance, one can do quick time analysis. Therefore the listing of ledger accounts is usually done in the sequence of Asset accounts, Liability accounts, Capital accounts, Owner’s equity accounts, Income or gain accounts and Expenses or losses accounts in that order.
Read More on Trial Balance
What is Trial Balance, How to Prepare Trial Balance, Rules & Examples of Trial Balance, Errors in Trial Balance