Methods To Prepare Trial Balance

Methods To Prepare Trial Balance

There are three methods in which a Trial Balance can be prepared. Which are as follows :

• Total Method or Gross Trial Balance
• Balance Method or Net Trial Balance
• Compound Method

These could be explained as under:

• Total Method or Gross Trial Balance:

 Under this method, two sides of the accounts are totalled. The total of the debit side is called the “debit total” and the total of the credit side is called the “credit total”. All the debit totals are entered on the debit side of the Trial Balance while the credit total is entered on the credit side of the Trial Balance

If any particular account has total in one side, it will be entered either in the debit column or the credit column as the case may be.

Advantage	It promotes the arithmetical accuracy of the accounts. Extraction of ledger balances is not required at the time of preparation of Trial Balance.
Disadvantage	Preparation of final accounts is not possible.

• Net Trial Balance or Balance Method:

   Under this method, all the ledger accounts are balanced. The balancing figure may be either a “debit balance” or “credit balance”.

  Advantage	It helps in the easy preparation of final accounts. Time and labour can be saved in constructing a Trial Balance following this method.
  Disadvantage	Errors may remain undisclosed irrespective of the agreement of Trial Balance.

• Compound Method:

   Under this method, totals of both the sides of the accounts are written in the separate columns. Along with this, the balances are also written in the separate columns. Debit balances are written in the debit column and credit balances are written in the credit column of the Trial Balance.

  Advantage	It offers the advantage of both methods.
  Disadvantage	Lengthy process and more time consumed in the preparation of a Trial Balance.

Utilities a Trial Balance can Offer and its Interpretation

The benefits of Trial balance could be found in the following:

• It assists in the preparation of financial statements i.e. - Profit and Loss Account and Balance sheet.
• A self-balanced trial balance ensures the arithmetical accuracy of the entries made. If the balances do not tally, then the errors can be found out, rectified and then financial statements can be prepared.
• It acts as a quick reference. So that we can easily find out the balance in any ledger account without actually referring to the ledger.
• If the classification of ledger accounts is systematically done in the trial balance, one can do quick time analysis. Therefore the listing of ledger accounts is usually done in the sequence of Asset accounts, Liability accounts, Capital accounts, Owner’s equity accounts, Income or gain accounts and Expenses or losses accounts in that order.