Trial Balance -
A Starting Point for Final Accounts: The trial balance is simply a list of ledger accounts balances at the end of an accounting period. This summary of the ledger at the end of an accounting period, is a convenient starting point in the preparation of the final accounts i.e. trading and profit and loss account and balance sheet. A trial balance usually contains the following types of balances:
The other three types of balances are transferred to the balance sheet to know the financial position of the business. Thus we prepare from the trial balance a trading and profit and loss account by matching revenue balance with expenses balances and by the time we have finished, we have very much smaller trial balance, which is then arranged into a balance sheet. so: Profit = Revenue - All expenses |