Discuss the methods of preparation and the utility of a Trial balance
Chapter6: Investing And Financing Activities
Section: Chapter Questions
Problem 4.12C
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Discuss the methods of preparation and the utility of a
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Step 1
Trial balance: Trial balance is a summary of all the ledger account balances presented in a tabular form with two columns debit and credit. It checks the mathematical accuracy of the ledger postings and helps preparing the final accounts. It is the first step in the preparation of the financial statements. Trial balance is prepared at the end of the accounting period.
Step 2
Methods of preparing the trial balance:
- Totals method: In this method, the every single ledger account is totaled and then the total of debit side and credit side is transferred to the trial balance. The trial balance is prepared once the ledger account is totaled. This method is not widely used because it will not help while preparing the financial statements.
- Balances method: In balances method, the ledger accounts are balanced and the balances are carried forward to the trial balance. This balances method is most widely used method because it gives the accurate balances and it helps in the preparation of the financial statements.
- Total and balance method: In this method both the totals and balances are combined together and the trial balance is prepared. In this method, there will be seven columns while preparing the trial balance.
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