Accountancy · Ch 6 — Trial Balance and Rectification of Errors
To Help in the Preparation of the Financial Statements
To Help in the Preparation of the Financial Statements
The trial balance is the bridge between the day-to-day bookkeeping and the final financial statements. Once the trial balance is tallied (total debits equal total credits), you have a verified list of every account balance. You do not need to go back to the ledger to prepare the Trading and Profit & Loss Account or the Balance Sheet — the trial balance itself provides all the necessary figures.
All revenue and expense accounts from the trial balance are transferred to the Trading and Profit & Loss Account. All asset, liability, and capital accounts are transferred to the Balance Sheet. This is the first concrete step in closing the books for the period.
A tallied trial balance is the first step in preparing financial statements. It acts as the connecting link between the accounting records and the final reports.
The table below shows how the trial balance items are classified for the financial statements:
| Trial Balance Item Type | Destination in Financial Statements |
|---|---|
| Revenue accounts (e.g., Sales, Commission Received) | Credit side of Trading and Profit & Loss Account |
| Expense accounts (e.g., Purchases, Salaries, Rent) | Debit side of Trading and Profit & Loss Account |
| Asset accounts (e.g., Cash, Debtors, Furniture) | Asset side of Balance Sheet |
| Liability accounts (e.g., Creditors, Bank Loan) | Liabilities side of Balance Sheet |
| Capital account | Owner's Equity side of Balance Sheet |