CIMA BA3 Syllabus B. RECORDING ACCOUNTING TRANSACTIONS - Trial Balance - Notes ^{10 / 35}

The entries in each ledger account are then totaled and a balance is found.

Balances are usually collected in a trial balance which is then used as a basis for preparing a statement of profit or loss and a statement of financial position.

A trial balance is a list of ledger balances shown in debit and credit columns.

It lists the balances on ledger accounts and totals them.

Total debits should equal total credits.

Therefore, it is a method used to test the accuracy of the double-entry bookkeeping, i.e. the accuracy of the accounting records.

If the debits do not equal the credits in the trial balance, then a suspense account is created on the lower side to ensure that both balances are equal.

Remember

Debit balances will include assets (e.g.) receivables, inventory, cash, purchases, expenses and drawings.

Credit balances will include liabilities, income and capital.

Advantages of a trial balance

1. It shows that ledger accounts contain debit and credit entries of an equal value.

2. It is the first step in the preparation of financial statements.

Disadvantages of a trial balance

1. It does not include final figures to be included in the financial statements

2. It does not identify errors of commission

3. It does not identify in which accounts errors have been made

4. If the trial balance does balance, this does not mean that there are no errors