Well of course we should if the B/S doesn’t balance. But with today’s computers making ledgers and records automatic, a large corporation should already be able to produce a balance sheet and income statement for the day, within a few hours. This of course assumes correct entry for every item, even giving no allowance for CAJE/PAJE.
Maybe I’m not fully understanding the question.
A trial balance is just a way of arranging the information. It’s convenient because debits and credits must equal, and it includes every item in the chart of accounts. It serves a useful purpose for accountants, especially if you add columns to show pre-adjustment, total adjustment and post-adjustment balances. However, it’s no more needed than any other statement.
As for producing statements from computer, it kind of depends what you mean by statements and what you mean by AJEs.
A proper statement (what a CPA would call a “compilation”) is not just a list of accounts and numbers (which is what the layman thinks a statement is). It comes with pages of disclosures and notes. Your computers may be able to generate the accounts and numbers at the click of a button, but most of those disclosures and notes take a human to determine what must be disclosed, determine the correct information for the disclosure and to write up the disclosure. This takes time, even if the disclosures are similar for each financial period.
AJEs can be the same way. The act of entering an adjustment may take very little time, but quite a bit of time can be spent making sure that the adjustment properly reflects activity, is calculated in accordance with industry standards, etc. etc. Often times a statement can’t be issued until information is verified with various departments of a company. For example, a company might have used 2% as their standard allowance for bad debt. For years, that might have been accurate, but should the year-end 2008 statements still use 2%? Probably not in the middle of a recession. So they shift to 5% for 2008-2010, but is that still realistic for 2011? Now you shift to 3%. Any monkey with a key pad can figure out what 3% of sales are; it takes some real knowledge and investigation to determine that 3% was the right number to use in the first place.
This past spring, I was reading through the 10-K form issued by a company that I own stock in. There were a few numbers in there, but a huge chunk of it was disclosure after disclosure about how these numbers really mean nothing because the company could go bankrupt tomorrow, here are some ways it could happen - slowdown in recovery from the recent recession, another recession, changing demographics leading to less interest in the company’s products and services, adverse legislation (damn Congress might make a law saying we can’t sell this no more!), ornery regulators at one of the administrative agencies in charge of supervising companies in our line of business, lions, tigers, bears, etc. for dozens of pages.
There is a special book with the language for all those disclaimers in it - its pretty boilerplate. I used to have a copy, but when I finished Audit Class, I think I might have burned misplaced it.
Let’s see… in pre-computer days, there was a so-called trial balance sheet. Two of them, actually. First is a listing of all debits and credits which you mentioned, whose totals must equal each other. The second is an honest to goodness balance sheet and income statement.
AKAIK, accountants in my country still crank out these two which are preliminary reports. But a lot of companies, especially the small and simple ones, can retrieve all their accounting information in a day and come out with an in-house F/S, as accurate as the given information will allow. Assuming the auditor agrees with the assumptions and presentation, there’s no reason why the audited F/S won’t turn out the same.
And when we bankers and auditors come over for our respective due diligence, we invariably ask for a trial balance, to which the client just gives a blank stare and asks, “Trial balance? Whazzat?”
Your basic financial statements are usefull to a point by investors and the public in general. As a company accountant or auditor they do not contain enough detail. A cash balance on a balance sheet could be a combination of three or three hundred bank accounts depending on the size of the company. You need a detailed trial balance for that.
So basically, people are saying a TB is needed to assure due diligence, both external and internal, of complicated accounts that cannot be retrieved or valuated easily.
Yes, that’s basically right.
The P&L or Balance Sheet could be generated in a way that shows all the account-level detail of the TB, but you still need two separate reports. Net income on the P&L ties to Net Income on the BS (again, assuming the report shows that detail and hasn’t folded the net income into Retained Earnings yet) and an accountant would probably start by making sure these do tie together - an extra step of work. So instead of trying to specify the level of detail needed on those reports and double-checking that they tie together, it makes more sense for an accounting professional to ask for the Trial Balance, which always provides what’s needed on a single report.
In a computer age, especially when you have drill-down reporting and the like, it may be less necessary to use a TB, but it’s still the basic tool for the job.
It’s like the idea of a subsidiary ledger. It used to be a separate physical book back in the days of pen-and-paper accounting. Now a subsidiary ledger is just a way of arranging data in a computer… but there are times it still makes sense to arrange the data that way.
I’m in a smaller NPO ($2.5M revenue annually), and I only use the TB monthly as an internal check on myself to make sure I didn’t accidentally book something to a month that was closed, and annually for the auditors to look at and use as a comparison to the prior year. And of course it is my quick verification when converting systems to make sure all information was captured.