the means by which the arithmetical accuracy of the book-keeping work is checked. When the totals of debit column and credit column in the trial balance are equal, it is assumed that posting from subsidiary books, balancing of ledger accounts, etc. are arithmetically correct. However, there may be some errors which are not disclosed by trial balance.
(ii) Basis for preparing final accounts Financial statements, namely, trading and profit and loss account and balance sheet are prepared on the basis of summary of ledger balances obtained from the trial balance. (iii) Location of errors When the trial balance does not tally, it is an indication that certain errors have occurred. The errors may have occurred at one or more of the stages of accounting process, namely, journalising or recording in subsidiary books, totalling subsidiary books, posting in ledger accounts, balancing the ledger accounts, carrying ledger account balances to the trial balance, totalling the trial balance columns, etc. Hence, the errors should be located and rectified before preparing the financial statements.
(iv) Summarised information of ledger accounts The summary of ledger accounts is shown in the trial balance. Ledger accounts have to be seen only when details are required in respect of an account. . Limitations of trial balance The following are the limitations of trial balance: (a) It is possible to prepare trial balance of an organisation, only if the double entry system is followed.
(b) Even if some transactions are omitted, the trial balance will tally. Accountancy - (c) Trial balance may tally even though errors are committed in the books of account. (d) If trial balance is not prepared in a systematic way, the final accounts prepared on the basis of trial balance may not depict the actual state of affairs of the concern. (e) Agreement of trial balance is not a conclusive proof of arithmetical accuracy of entries made in the accounting records.
This is because there are certain errors which are not disclosed by trial balance such as complete omission of a transaction, compensating errors and error of principle. .