what are the characteristic features of Trial Balance?

 Are you all curious to know as to what are the characteristic features of Trial Balance? Let us look into it in brief. We shall discuss this 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 characteristic features of Trial Balance?

Here, we have the following points below

1. Debit & Credit Balances

It gives the summary of all ledger account balances. All the debit & credit balances extracted from relevant ledger accounts are listed in a particular format. It gives the details of the ledger account balances. For example, the debtor's account has a debit balance, shown on the debit balances column. Similarly, the creditor's account has a credit balance, shown on the credit balance column. 

2. It is a Statement, not an account

It is only a statement or report, not an account. An account has a T shape. The left side of an account is referred to as Debit and denoted as Dr. Similarly, the right side of an account is Credit, denoted as Cr. It is the statement prepared after extracting the ledger account balances.

3. Arithmetical Accuracy of books of accounts

It gives the arithmetical accuracy of the transactions recorded in the books of accounts. But this arithmetical accuracy of accounts can only be determined by conducting an audit. As we know, the audit is an independent examination of books of accounts to ensure that the accounts are prepared as per the accounting standards, and accounting policies.

4. Basis for Financial Statements

Trial balance forms the basis for the preparation of financial statements. Financial statements include profit & loss account, balance sheet, notes to accounts, and cash flow statement. This helps in the finalization of accounts. These financial statements are prepared after the preparation of the Trial Balance.

5.  Prepared at a particular point of time

This statement is prepared at a particular point of time such as weekly, monthly, half-yearly. Generally, it is prepared after extracting the ledger account balances, prior to the finalisation of accounts. Thus, it is just a statement but not an account, prepared at a particular point of time. Mostly, this statement is prepared at the end of the accounting period.

6. Forms/methods of Trial Balance

It can be prepared using two methods. One is the Total method and the other one is the Balance method. We can also use the compound or hybrid method, a combination of both  Total method and Balance method. Under the Total method, the debit side of an account is totalled and the credit side of an account is totalled. The debit total of an account is taken on debit column of Trial balance. The credit total of an account is taken on credit column of Trial Balance. Under Balance method, ledger accounts are balanced. The debit balance of an account is taken on debit side of trial balance. The credit balance is taken on credit side of trial balance.

7  Format/specimen of Trial balance

It is prepared in a particular format. Here, we have columns such as serial no, name of the account, debit balance, and credit balance. We mention the name of the account and put the balance of an account in the balance column. The balance column is totalled. The total of Debit balance column must be equal to the total of the Credit balance column

8. Types of Trial Balance

Generally, we have adjusted and unadjusted Trial balance. Unadjusted trial balance is prepared prior to recording the adjustment entries. Adjusted trial balance is prepared after passing adjustment entries. We also have post closure trial balance which is prepared after closing entries were completed.

9. Rules to prepare Trial Balance

It has an equation where the total of debit balance column must be equal to the total of credit balance column. If both the debit balance column and the credit balance column have same amount, then it will imply that there are no errors or omissions. If there exist any difference or total of debit & credit balance column does not tally, then the difference is taken to Suspense Account

Conclusion

This helps us to understand, the characteristic features of Trial balance in simple terms. Also, give us the comments below, if you like the content. Feel free to share the content. In simple terms, a Trial balance is a statement prepared, to give the arithmetical accuracy of transactions recorded in books of accounts, at a particular point of time. It forms the basis for the preparation of financial statements