Trial balance gives a summary of all general ledger accounts opened within an accounting period. The general ledgers are arranged according to their account numbers. The trial balance has debit and credit columns. Closing balances in the general ledger accounts are recorded in these debit and credit columns. There are several ways of preparing a trial balance. The first approach is the total method. Under this method, the totals of credit and debit entries in a general ledger account are recorded in the trial balance. The second approach is the balance method. Using this approach, the balances in the general ledger account are recorded in the trial balance. The final approach is the compound method. This approach combines both the total and the balanced approach (Haber 2004).
We will write a custom Essay on The Usefulness of Trial Balance and Audit Trail in Running a Business specifically for you
301 certified writers online
The trial balance is a vital tool for analyzing the accounting information of a company. First, the trial balance is the foundation for preparing the final accounting reports such as a statement of income, the statement of financial position, and the cash flow statement. Secondly, the trial balance aids in identifying errors. It provides an initial point for identifying errors committed when preparing books of accounts. When the debit totals do not match with the credit totals, it implies that there is an error in the trial balance. Thirdly, the trial balance summarizes all the financial transactions of an entity. It provides a user with a summarized view of all transactions that were carried out within a financial period. Finally, the trial balance enables a user to check for completeness and accuracy of financial transactions recorded for a given period (Brigham & Houston 2009).
An audit trail denotes the ability to present a complete track of a selected financial transaction. It is the ability to identify each step when processing a transaction from start till completion of the transaction. Keeping a trail of a transaction entails providing supporting documents for all the steps involved in processing the transaction. In the contemporary business world, it is necessary to have an audit trail not only of financial transactions but also of all other key processes in the business. For instance, an audit trail may entail tracing data stored in electronic form. This ensures a smooth flow of work and accountability. Audit trails can be used for two purposes. These are either to support regular operations of the system or to act as a cover (Vance 2003). In supporting a regular system, the audit trail helps to ensure that there is no interference with the data stored. These interferences can be caused by fraudsters or hackers.
An audit trail is important to a business in several ways. First, they enhance personal accountability because employees in a business are personally accountable for the steps they execute in a transaction. This promotes the behavior of employees because they know that they are liable for the actions they undertake. Secondly, audit trails help in improving systems in a business. This can be noted after an occurrence of a technical problem because audit trials can point out the time and how the technical problem occurred. Therefore, it is useful in reconstructing the system. Thirdly, audit trails help in identifying unauthorized access into the system. When an audit trail is used to support the system, it can tell in real-time when unauthorized access is made in the system. Finally, the audit trail aids in analyzing a problem that is, to find out its cause and other necessary information that might be required (Kymal 2007).
Brigham, F & Houston, F 2009, Fundamentals of financial management, South-Western Cengage Learning, USA.
Haber, J 2004, Accounting dimistified, American Management Association, New York.
Kymal, C 2007, Conducting effective process-based audits: A handbook for ISO/TS 16949, Paton Professional, United States of America.
Vance, D 2003, Financial analysis and decision making: Tools and techniques to solve. McGraw-Hill books, United States.