The double entry system of accounting states that every transaction will affect two accounts. If the first account is debited then the second one will be credited or vice versa. It means that every value that is placed on the debit side of a first account must be placed on the opposite credit side of a second account.
To ensure that a proper matching credit entry for every debit entry is being observed a Trial Balance is prepared. A trial Balance is said to be a statement of arithmetic proof to ensure that proper double entry is being done. This statement is made of a list of account balances arranged according to whether they are debit balances or credit balances.
Steps to Trial Balance Entry
-The accounts should first be entered.
-The accounts should secondly be balanced off.
-The accounts balances should be entered in the Trial Balance on the same side as the balance b/d in the accounts.
-Total both debit and credit columns.
If the totals of both columns are not equal then it means that there may be one or more accounting errors. If both column totals are in agreement then it is assumed that proper double entry was observed.
The Uses and limitations of the Trial Balance
-The Trial Balance assists in detecting accounting errors
-It provides closing balance figures for accounts to enter for Final Accounts
-It provides a summary of relevant accounts to assist management in making decisions.
The trial Balance will only detect some types of accounting errors. There are roughly seven errors which will not be revealed by the trial balance. These errors will be looked at separately a little later.