How To Prepare Trial Balance?

Steps to prepare trial balance

Step-1 Debit and Credit Rule

The rules of debit and credit are as follows. One just needs to remember these rules to record all the transactions in the books of accounts.

• Debit the account when the assets/expenses increase, and the liabilities/revenues decrease.
• Credit the account when the assets/expenses decrease, and the liabilities/revenues increase.

Step-2 Journal Entry

In the journal entry system, one just needs to record the debit and credit accounts in proper order.

For example, cash is introduced into the business in form of cash. Going by the debit credit rule we will arrive the following result:

The journal entry will be as follows :

Cash A/c (Dr) xxx

To Capital A/c (Cr) xxx

Step-3 Ledger Entry

Ledger entry is something which is recorded in the “T” format. And it’s from here where the Trial Balance gets its inputs. The net balance (Debit or Credit) of individual accounts forms part of Trial Balance.

Considering the above example, we can record the ledger entry as below. There are two ledger accounts affected in this transaction.

Step-4 Constructing Trial Balance

So it can now be easily said that the end balances of Ledger account is what forms part of the trial balance and taking forward the above example, the trial balance can be constructed in the manner as below:

Difference Between Trial Balance and Balance Sheet

Basically, the trial balance is an internal document. And the balance sheet is prepared to disclose the financial affairs of the company to external stakeholders. To break it up, a balance sheet is an extension of the accounts recorded in the trial balance.