14. Routine of preparing a trial balance.—It is advisable at this stage to give a condensed summary of the various operations involved in taking a trial balance. (1) It is necessary to make certain that all transactions for the month have been recorded in the books of original entry. (2) Such books as are to be posted in total must be footed and closed out. (3) The equilibrium of the books of original entry should be tested to determine whether in each book the debits equal the credits. It is especially impor tant to apply this test to those books that are posted in total. It is not necessary to foot the journal when every item is posted individually. It is only necessary to be sure that every entry expresses an equality of debits and credits. (4) All postings must be made for the month.
After all postings have been made, the total of each account must be, found; and the balance in each ac count and the excess of debits or credits made to each account for the month must be compiled in the trial balance. Then the trial balance must be footed. In their final form, the total of the debits and the total of the credits for the month should equal each other, just as the total of the debit balances should equal the total of the credit balances.
15. Proving the subsidiary books.—While the trial balance, as it is generally used, simply serves to prove the debits and credits in the general ledger, this kind of proof is valuable and should be applied also to the subsidiary ledgers. It is evident that when the
ledgers are controlled by an account in the main ledger, the subsidiary books themselves will not be in a state of balance. Nevertheless, an abstract of the debits and Credits must be made and it must be ascer tained whether or not the excess of total debits over total credits, or the excess of total credits over total debits, is equal to the balance in the controlling ac count in the general ledger.
16. Other uses of a trial balance.—It will have been noticed that the final trial balance contains a com plete summary of the accounts in the ledger. Trans actions for the month and the progress for the year to date are shown. The relation of the trial balance to the business or financial statements is such that one does not need to refer to the ledger in order to be able to tell the results of operations, or the condition of the finances, provided, of course, such extraneous items as inventories, etc., are known.
Indeed it will be very difficult to prepare financial statements directly from the ledger. Entirely aside from the question of the time which would be re quired to do this, it would be practically impossible to avoid errors were this method adopted. The trial balance, containing, as it does, an abstract of all the accounts, is the foundation for the statements.
Therefore, if it is free from errors, even tho the books of account may be destroyed, it will contain informa tion necessary to the conduct of the business.