Trial Balance is A Link Between Ledger And Final Accounts Explain

Trial Balance is a link between Ledger and Final Accounts, because, after preparing ledger accounts, all the accounts, both Temporary Accounts and Permanent Accounts, are compulsory transferred to Trial Balance and then from Trial Balance to Final Accounts (Income Statement, Balance Sheet, Statement of Retained Earnings and Statement of Cash Flows) are Prepared.

This process of transferring all accounts from ledger’s accounts to trial balance balance and then to final accounts is compulsory, otherwise, the Financial Statements do not give true and fair view of accounting information to users of financial statements.

The debit balance’s accounts are recorded on debit side of trial balance and credit balance’s accounts are shown on credit side of trial balance. The total of all debits’s accounts must be equal to the total of all credit’s accounts, otherwise there may be certain errors, mistakes or frauds.. Moreover, although, the debit and credit accounts of trial balance agree with each other arithmetically, yet there are also certain types of hidden errors, mistakes or frauds which must be checked before preparing final accounts.

Basically, we prepare Unadjusted Trial Balance, Adjusted Trial Balance, Post-Closing Trial Balance to transfer all accounts to final accounts. All the temporary accounts are transferred to Income Statement and all the permanent accounts are transferred to Balance Sheet.

During the transferring process from ledger accounts to trial balance and from trial balance to final accounts, errors, mistakes and frauds are prevented. If these are detected, then these are corrected through proper audit conducted by qualified audit firm.

So, the link between ledger and final accounts is created with Trial Balance carefully, so that errors, mistakes and frauds are prevented, detected and corrected. This link is treated as a bridge between ledger and final accounts.