What are the advantages (uses) & disadvantages of Trial Balance?

 Are you all excited to know the advantages and disadvantages of Trial Balance? Let's dive into it. We shall discuss it in simple terms

What is Trial Balance in accounting?

Trial Balance is a statement that is prepared to ensure the arithmetical accuracy of books of accounts. It is a statement, not an account. It is prepared on a particular date to ensure the arithmetical accuracy of books of accounts i.e., to check that all accounts adhere to the Generally Acceptable Accounting Principles and there are no clerical errors exist in books of accounts.

It has all the ledger accounts having debit and credit balances. It has a debit balance and credit balance columns which are equal in amount and tallies. If both the credit and debit columns are equal in amount and tallies then it represents that there are no errors and ensures arithmetical accuracy of books of accounts. The difference amount in the Trial Balance, when debit & credit balance does not tally, will be transferred to the suspense account. When these errors are rectified, then the suspense account is closed by passing an adjustment entry. 

What are the advantages (uses) or benefits of Trial Balance?

The following were the advantages, uses (benefits) of the trial balance.

1. It helps to ascertain the arithmetical accuracy of books of accounts

2. To facilitate the preparing the financial statements, to finalise the accounts.

3. It aids in summarising the financial transactions & consolidating ledger account balances

4. It helps to identify & rectify the errors, omission of transactions

5. To ensure that ledger posting is done correctly, extracting ledger account balances

6. It helps the auditors to conduct the audit in a smooth & fair manner

7. It helps to make the decisions by comparison of ledger account balances with the prior period.

8. To assist in passing adjustment entries, closing entries at the year-end

9. To assist the management in the preparation of a financial budget for the upcoming accounting periods

10. It ensures that the total of debit balance are equal to total of credit balances.

What are the disadvantages (limitations) of Trial Balance?

The following are the demerits or disadvantages or limitations listed below.

1. It does not prove that all the transactions have been recorded in the books of accounts. There may be transactions omitted to be recorded in the Journal.

2. It cannot assure that the Ledger is correct and reliable. There may be errors committed in Ledger while posting or balancing the ledger accounts.

3. It cannot find the missing journal entries in the Journal because there may be transactions omitted while recording the transactions.

4. It cannot locate the duplicate entries booked in the journal. There may be entries recorded twice in Journal that cannot be detected.

5. It cannot identify the errors committed while recording the transactions in the books of accounts. These errors may be error of omission, error of commission, principle errors, or compensating errors.

Conclusion

This helps to explain the advantages and disadvantages of Trial Balance. It helps in the preparation of financial statements and gives the arithmetical accuracy of transactions recorded in the books of accounts