What is the Trial Balance Format?
Trial Balance has a tabular format which shows details of all ledgers balances at one place. It includes transactions done during the year as well along with the opening and closing balances of ledgers, as every entity needs to evaluate its financial position over a particular span of time. The trial balance shows the list of all the accounts with both debit as well as credit balance at one place and helps in analyzing the position and transactions entered into during such time period at one place.
Generally, the trial balance format has three columns. First columns or particulars describe the ledger accountDescribe The Ledger AccountLedger in Accounting, also called the Second Book of Entry, is a book that summarizes all the journal entries in the form of debits & credits to use for future reference & create financial statements. as name or head under which such ledger is created. Then there is AMOUNTS (DEBIT), i.e., the ledgers which have debit balances; generally, assets of an entity are shown under this column. The last is for AMOUNT (CREDIT), i.e., those ledgers which have credit balances such as share capitalShare CapitalShare capital refers to the funds raised by an organization by issuing the company's initial public offerings, common shares or preference stocks to the public. It appears as the owner's or shareholders' equity on the corporate balance sheet's liability side., reserves and surplusesReserves And SurplusesReserves and Surplus is the amount kept aside from the profits that are to be used either for the business or for the shareholders to pay out dividends. Reserves and surplus is reflected under shareholders funds in the balance sheet., current and non-current liabilities, etc.
To illustrate the above text; a derived table is as follows:
|Particulars||Amount (Dr)||Amount (Cr)|
Explanation of Trial Balance
The Trial Balance can be prepared by using the following steps:
- Make ledger posting of all the journal entries.
- Re-verify, whether any transaction is omitted or all the balances are prepared correctly or not?
- After that, the final step is to arrange the closing balances of all the ledger accounts in debit and credit array at one place called Trial Balance.
The primary purpose of preparing the trial balance format in excel is to reconcile all the ledger balances to make the financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels. of the entity at the end of a particular period, submitted or prepared as per the legal regulations. In simple words, it can be said that the fundamental first step is to pass journal entries. After that, those journal entries passed would be posted to respective ledgers called ledger posting. After that, only the correct closing balances of all the ledgers could be seen from the Trial Balance. Sometimes, governing law mandates the preparation of Trial Balance, so for satisfying that purpose also, some entities prepare the trial balance.
Trial Balance Format
The trial balance in excel is as follows:
As per the above-drawn trial balance that all the assets have a debit balanceDebit BalanceIn a General Ledger, when the total credit entries are less than the total number of debit entries, it refers to a debit balance. A debit balance is a net amount often calculated as debit minus credit in the General Ledger after recording every transaction., and all the liabilities have credit balanceCredit BalanceCredit Balance is the capital amount that a company owes to its customers & it is reflected on the right side of the General Ledger Account. Usually, Liability accounts, Revenue accounts, Equity Accounts, Contra-Expense & Contra-Asset accounts tend to have the credit balance. except the balances of Bank overdraftOverdraftOverdraft is a banking facility that offers short-term credit to the account holders by allowing them to withdraw money from their savings or current account even if their account balance is or below zero. Its authorized limit differs from customer to customer., which have credit balance but shown on the debit side. As shown above, the salary payableSalary PayableSalary payable refers to the liability of the company towards its employees against the amount of salary of a period that became due but has not been paid yet to them by the company and it is shown in the balance of the company under the head liability. and rent payable show on the credit side. These are the liabilities of the business to be paid shortly and hence shown as a credit balance. The main thing to focus on is that the total balance of the credit side and debit side of trial balance would always match if all the postings made correctly.
Examples of Trial Balance Format
Prepare the trial balance of ABC Inc. from the available balances as on date 31.03.2019, which as follows:
|Business Loans & Advances||$500,000|
|Reserve & Surplus||$2,250,000|
|Profit & Loss Balance||$112,000|
Now, the trial balance of ABC Inc. as on 31.03.2019 is as follows:
The main thing to notice here is the total of debit and credit side of the trial balance is equal.
Prepare the trial balance of an NBFC having following ledger balances as on date 31.03.2019 which as follows:
|Profit & Loss Balance||$2,512,000|
|Provision for Bad Debts||$4,000,000|
Now, the trial balance of NBFC as on 31.03.2019 is as follows:
Trial balance is an essential tool for any business concern to reconcile whether the books of accounts are correctly maintained or not. The ledger balances, i.e., of all expenses, incomes, receipts, payments, assets, liabilities, share premiums, etc. are to be reported in the trial balance. The debit balance of profit and loss account is to be shown on the credit side of the trial balance by mentioning a negative sign in the amount column.
While preparing the ledgers and trial balances, one must be very alert to check whether each ledger is correctly prepared. Otherwise, the final result can say the financial statements prepared do not show us the accurate picture or results of the business operationsBusiness OperationsBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company's goals like profit generation..
Finally, a person who has a good knowledge of accounting and has relevant experiences in such a field should be assigned responsibility to prepare the trial balances of the entity for the selected period, followed by the preparation of financial statements.
This article has been a guide to the Format of Trial Balance. Here we discuss examples of trial balance in excel and its purpose with a detailed explanation. You can learn more about financing from the following articles –