Introduction and Objectives of Trial Balance

This note provides you with the introduction and objectives of the trail balance.

Summary

This note provides you with the introduction and objectives of the trail balance.

Things to Remember

  • Trail balance is the third step of accounting.
  • A trial balance is a list of debit and credit balances of all the ledger accounts extracted on a given date.
  • The fundamental principle of the double entry system is that the every debit amount must be equal to every credit amount or vice versa. 

MCQs

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Subjective Questions

Q1:

Explain the advantages of insurance.


Type: Long Difficulty: Easy

Show/Hide Answer
Answer: <p>Insurance provides benefits to an individual, family, businessman as well as a society. the main advantages of insurance can be described as follows: -</p> <ol><li><strong><strong>Provides economic protections<br></strong></strong>Insurance provides economic protection to the insured. It provides financial protection to the insured against the unexpected losses in consideration of nominal amount called premium. It provides financial protection to the dependent in case of pre-matured death of insured. The insurance company also covers the loss of properties due to theft, fire, accident and other natural calamities.</li> <li><strong>Shares risks<br></strong>People are exposed to various kinds of risks and uncertainties. It is impossible to eliminate risks and uncertainties altogether. Insurance is a co-operative device, which helps to share the risks among the insured. Thus, the impact of risk can be reduced to the minimum through the distribution of risks among many insured members.</li> <li><strong>Maintains standard of living<br></strong>Insurance has become sure instrument to provide financial protection against an unexpected risk of losses. By this means, people can maintain their living standard too. It is because insurance company provide a safeguard in terms of money to avoid the unfortunate financial crisis.</li> <li><strong><strong>Encourages saving<br></strong></strong>An insured person should compulsorily pay the amount of premium in time as stated in the agreement in order to avoid fine and lapse of an insurance policy. It encourages for developing a saving habit of persons. It helps to reduce unnecessary expenses. Hence, insurance is a means of encouraging saving.</li> <li><strong>Eliminates dependency<br></strong>In the event of the death of breadwinner or destruction of properties, the family suffers from unbearable and non-compensationable losses. The insurance protects against the uncertainties providing adequate financial support. The life insurance policy gives full financial support to the insured in his old age. It also provides financial support to the dependent in case the death of the insured. This provision definitely helps to eliminate the dependency of people.</li> <li><strong>Creates employment opportunities<br></strong>Insurance companies need different types of personnel having distinct skills, experiences and academic qualifications for operating its business. So, people get an ample employment opportunity in insurance companies. They also increase employment opportunities indirectly by promoting trade and industry in the country.</li> <li><strong>Promotes foreign trade<br></strong>Foreign trade is relatively riskier than domestic trade. Goods and properties are transported from distant places by means of air or water or land transport or combination of these modes. There are different types of risks in transit associated with a foreign trade like marine perils, chances of an explosion, terrorism, storm, tempest etc. Insurance provides protection against such unpredictable risks of losses, which definitely promotes foreign trade.</li> <li><strong>Helps to operate business smoothly<br></strong>Insurance provides financial compensation in case of loss or damage to the properties of the business. An insurance policy taken for the employees increases their morale and motivation at work. Therefore, insurance plays a vital role to let the business run smoothly even in the situation of unfavorable events.</li> <li><strong><strong>Help to reduce inflation<br></strong></strong>The term inflation indicates the increase in the price level of goods or services. Inflation is a concept, which every citizen is not only aware of it, but they experienced painfully. In order to control the inflation, a volume of money in the market should be reduced. An insurance company takes the money from the people in the form of premium, which reduces the volume of money in the market. Hence, it helps to control the inflation in the country.</li> <li><strong>Help to develop economy<br></strong>Insurance companies collect premium against life and non-life policies. The amount of premium so collected is invested in productive sectors like trade and industry. Such investment helps to promote trade and industry in the country. Ultimately, it helps for the economic development of the country.</li> </ol>

Q2:

Explain any five advantages of insurance.


Type: Short Difficulty: Easy

Show/Hide Answer
Answer: <p>Insurance provides benefits to an individual, family, businessman as well as a society. the main advantages of insurance can be described as follows: -</p> <ol><li><strong><strong>Provides economic protections<br></strong></strong>Insurance provides economic protection to the insured. It provides financial protection to the insured against the unexpected losses in consideration of nominal amount called premium. It provides financial protection to the dependent in case of pre-matured death of insured. The insurance company also covers the loss of properties due to theft, fire, accident and other natural calamities.</li> <li><strong>Shares risks<br></strong>People are exposed to various kinds of risks and uncertainties. It is impossible to eliminate risks and uncertainties altogether. Insurance is a co-operative device, which helps to share the risks among the insured. Thus, the impact of risk can be reduced to the minimum through the distribution of risks among many insured members.</li> <li><strong>Maintains standard of living<br></strong>Insurance has become sure instrument to provide financial protection against an unexpected risk of losses. By this means, people can maintain their living standard too. It is because insurance company provide a safeguard in terms of money to avoid the unfortunate financial crisis.</li> <li><strong><strong>Encourages saving<br></strong></strong>An insured person should compulsorily pay the amount of premium in time as stated in the agreement in order to avoid fine and lapse of an insurance policy. It encourages for developing a saving habit of persons. It helps to reduce unnecessary expenses. Hence, insurance is a means of encouraging saving.</li> <li><strong>Eliminates dependency<br></strong>In the event of the death of breadwinner or destruction of properties, the family suffers from unbearable and non-compensationable losses. The insurance protects against the uncertainties providing adequate financial support. The life insurance policy gives full financial support to the insured in his old age. It also provides financial support to the dependent in case the death of the insured. This provision definitely helps to eliminate the dependency of people.</li> </ol>

Q3:

Write any two advantages of insurance.


Type: Very_short Difficulty: Easy

Show/Hide Answer
Answer: <p>Any two advantages of insurance are:</p> <ol><li>The insurance protects against the uncertainties providing adequate financial support.</li> <li>It provides financial protection to the insured against the unexpected losses in consideration of nominal amount.</li> </ol>

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advantages of insurance
Introduction and Objectives of Trial Balance

Introduction and Objectives of Trial Balance

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Introduction

A business records all its financial transactions first of all in journal or subsidiary books. Hence, the journal is the first step of accounting. It posts the transactions from the journal to the ledger by opening up individual accounts. Hence, the ledger is the second step of accounting.

While recording the transactions in the journal or subsidiary books and posting them in a ledger, a number of errors can be committed. Before preparing final accounts, therefore, the journal or subsidiary books and the ledger accounts must be checked to confirm their arithmetical accuracy. A statement, which is prepared to check the arithmetical accuracy of the books of accounts, is called trail balance. Hence, the trial balance is the third step of accounting.

The fundamental principle of the double entry system is that the every debit amount must be equal to every credit amount or vice versa. This principle is applicable both in journal and ledger. Hence, the principle provides a check on the arithmetical accuracy of the journal and ledger through the means of the trail balance.

Meaning and Definition

A trial balance is a list of debit and credit balances of all the ledger accounts extracted on a given date. It is not an account rather only a statement. It is not a part of books of accounts maintained under double entry system. It is the statement of debit and credit balances of all the assets, liabilities, capital, incomes and expenses. It is prepared in a separate sheet of paper to verify the arithmetical accuracy of books of account. Following are the main definitions of the trial balance:

"Trail balance is the list of debit and credit balances, taken out from the ledger, it also includes the balances of cash and bank taken from the cash book," - R. N. Carter

"The statement prepared with the help of ledger balances at the end of financial year (or at any other date) to find out whether debit total agrees with credit total is called trail balance. " - R. Pickle

"Trail balance is a list of balances debit or credit standing in the books of a trade at any given date," - J. R. Batliboi

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Objectives

The main objectives of preparing the trial balance are as follows:

  1. To obtain summary information: The trial balance provides summary information of all the ledger accounts in one place. It presents the balances of all the assets, liabilities, capital, incomes and expenses relating to a particular date.
  2. To help in making composition and decision: The trial balance helps in comparing the balances of assets, liabilities, capital, incomes, and expenses between two different periods. Such comparison helps in making a proper judgment of different activities of the business and arriving at important decisions.
  3. To check arithmetical accuracy: The trial balance checks the arithmetical accuracy of the books of accounts. It checks whether the total of debit balances equals the total of credit balances or not. If the trial balances agree, it proves the arithmetical accuracy. If it does not agree, it includes the existence of errors in the books of accounts, which are to be located and rectified.
  4. To facilitate for preparing the final accounts: The trial balance serves the basis for preparing the final accounts. From the trial balance, the balances of incomes and expenses are placed on the trading and profit and loss accounts and the balances of assets, liabilities and capital are placed on the balance sheet.
  5. To help for locating and rectifying errors: The trial balance helps to locate the accounting errors at an early stage. It's disagreement is the signal for the existence of accounting errors in the books of accounts, which compels to locate and rectify them in future.
  6. To help in minimizing errors and frauds: The trial balance helps in minimizing the different types of accounting errors and frauds. If the errors and frauds are committed, the trial balance disagrees. Hence, it gives moral pressure to the accounting personnel to maintain books of accounts with great care and honesty.

Lesson

Trial Balance

Subject

Accountancy

Grade

Grade 9

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