As a copy editor, it is crucial to have a good understanding of SEO to ensure that articles are easily discoverable by search engines. With that in mind, let`s delve into the topic at hand: the principle on which the agreement of trial balance is based.
Trial balance is a statement of all the ledger balances of a company. It is used to check the accuracy of the accounting books and to identify any errors. The agreement of trial balance refers to the process of ensuring that the total of the debit balances in the trial balance is equal to the total of the credit balances.
The principle on which the agreement of trial balance is based is the double-entry accounting system. This system requires that every transaction be recorded in at least two accounts, with one account being debited and the other being credited. The debit and credit entries must always be equal in value, which means that the total of all debit entries must be equal to the total of all credit entries.
To understand the double-entry accounting system, it is essential to know that every transaction affects two accounts. For example, when a company purchases inventory on credit, two accounts are affected. The inventory account is debited to increase the value of the inventory, while the accounts payable account is credited to indicate that the company owes money to the supplier.
When all the transactions are recorded using this system, the trial balance is prepared, and the total of all debit balances is compared to the total of all credit balances. If the two totals are equal, it means that the accounting books are balanced, and there are no errors.
However, if the totals are not equal, there is an error that needs to be identified and corrected. The error could be a mathematical mistake, an incorrect entry, or a missing entry. Once the error is identified, it is corrected, and the trial balance is prepared once more.
In conclusion, the principle on which the agreement of trial balance is based is the double-entry accounting system. This system ensures that every transaction is recorded in two accounts with equal debit and credit entries. The trial balance is used to verify the accuracy of the accounting books by ensuring that the total of the debit balances is equal to the total of the credit balances. Any discrepancy must be identified and corrected to ensure that the accounting books are accurate.