What are the methods of preparing trial balance?
The methods of preparing trial balance are:
(i) Totals Method: Under this method, the total of each side in the ledger (debit and credit) is ascertained separately and shown in the trial balance in respective columns. The total of debit column should agree with the total of credit column. However, this method is not widely used in practice as it does not help in assuming accuracy of balances of various accounts and preparation of financial statements.
(ii) Balances Method: This is the most widely used method in practice. Under this method, the trial balance is prepared by showing the balances of all ledger accounts and then totalling up the debit and credit columns. The account balances are used because they summarise the net effect of all transactions and help in preparing financial statements.
(iii) Totals-cum-balances Method: This method is a combination of totals method and balances method. Four columns for amount are prepared—two for writing debit and credit totals and two for writing debit and credit balances. However, this method is not used in practice as it is time consuming and hardly serves any additional purpose.
Explanation
The NCERT textbook clearly outlines three methods of preparing a trial balance in section 6.3. The Totals Method involves using ledger totals but is rarely used. The Balances Method is the most practical and widely adopted approach since it directly provides account balances useful for financial statements. The Totals-cum-balances Method combines both but is impractical due to being time-consuming. Students should emphasise that the Balances Method is the preferred approach in real-world accounting practice.
Solution Steps
Step 1: Identify the three methods from the textbook - Totals, Balances, and Totals-cum-balances
Step 2: Explain each method briefly with its characteristics
Step 3: Mention the practical applicability of each method as stated in the context