Every business transaction has a dual effect. Thus, each transaction is recorded in two separate accounts as per the Double Entry System of accounting. The double entry accounting principle means that for every debit, there is an equal credit. Thus, as per this principle, the sum of all debits is equal to the sum of all credits. As a result, it is assumed that the transactions posted in ledger accounts in terms of debit and credit amounts are correct.
So, the accountant or the business owner first records transactions in the Journal following the basics of accounting. Then, entries from the Journal are recorded into the ledger accounts. Further, the closing debit or credit balances in various ledger accounts go into the Trial Balance of the business for a particular year.
Therefore, Trial Balance is prepared basically to check if debit or credit amounts recorded in the ledger accounts are accurate. So, let’s understand
- what is trial balance?
- how is a trial balance prepared?
- how is it useful for your business?