Trial Balance

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Trial balance is a bookkeeping or accounting report that lists all the accounts that a company uses in its accounting system, along with their respective debit or credit balances. The purpose of a trial balance is to ensure that the accounting system is accurate and that the debits and credits for each account balance out.

The trial balance is created by extracting the balances of all the accounts from the company’s general ledger at a specific point in time, usually at the end of a reporting period, such as a month or a quarter. The balances are then listed on the trial balance sheet in two columns, one for debits and one for credits.

The total of the debit column must equal the total of the credit column, as the accounting equation dictates that every transaction must have an equal debit and credit. If the totals do not match, it indicates that there is an error in the accounting system that needs to be corrected before financial statements can be produced.

The trial balance is an important tool for accountants and auditors as it helps to ensure the accuracy and completeness of the company’s financial records. It is also used to prepare financial statements such as the balance sheet, income statement, and cash flow statement.

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