Accounting systems offer many opportunities to introduce errors. For a novice bookkeeper, double-entry accounting can be confusing—and even a professional accountant is vulnerable to hitting the Enter key at the wrong time or accidentally debiting $10,000 to office supplies instead of to accounts receivable.
A trial balance is a tool accountants use to check that the general accounting ledger is accurate and to minimize errors occurring in a company’s financial statements. These internal financial reports can help verify the accuracy of a double-entry accounting system and identify errors before any critical external financial statements are issued.
While a trial balance can’t incontrovertibly prove that no errors exist anywhere in a business’s accounting system, it can point to inaccuracies and help to identify and correct errors in accounts in the general ledger.
What is a trial balance?
A trial balance is a financial report of credit entries and debit entries that businesses use to internally audit their double-entry accounting systems. The goal is to confirm that the sum of all debits equals the sum of all credits and identify whether any entries have been recorded in the wrong account.
In double-entry accounting, a credit to any account must be offset by a debit to another account. While general ledgers will list individual credit entries and debit entries for each transaction, a trial balance sums the credit balances and debit balances by account, calculating the total credit balance and debit balance at the bottom. If your general ledger is accurate, the debit balance will equal the credit balance.
Today, credit balances and debit balances are checked automatically, mostly eliminating the need to create trial balance documents. However, trial balances are still useful for accountants who need to check their work and for auditors who may need to understand which accounts to audit.
What does a trial balance include?
A trial balance document lists all of the accounts from the general ledger, with two columns: one for debits and one for credits. A trial balance typically includes five elements:
- Credits and debits to each account from transactions during the accounting period
- The associated account names
- The associated account numbers
- The dates of the accounting period
- The total sum of all debit balances and credit balances
Trial balance example
Here’s an example of a trial balance.
Trial Balance for period 1/1/2022 to 3/31/2022 |
|||
|---|---|---|---|
| Account Number | Account Name | Debit | Credit |
| 101 | Cash | $1,825 | $400 |
| 102 | Accounts receivable | $725 | $625 |
| 105 | Inventory | $400 | $300 |
| 201 | Accounts payable | $0 | $1,725 |
| 302 | Common stock | $0 | $275 |
| 401 | Sales revenue | $0 | $925 |
| 502 | Credit card expense account | $450 | $0 |
| 505 | Utility expense account | $550 | $0 |
| 507 | Cost of goods sold | $300 | $0 |
| Total Balance | $4,250 | $4,250 | |
In this example, the total credit balance equals the total debit balance. While this alone cannot confirm that all entries have been entered correctly, it’s a good sign that your accounts are accurate. A discrepancy between balances means that there is an error somewhere in the accounting system.
What are adjusted trial balances?
Adjusted trial balances are a type of trial balance issued after the initial trial balance is prepared. The adjusted trial balance accounts for information that is missing or misrepresented in the general ledger and can correct for errors identified in the initial report.
For example, let’s say that you bought $600 worth of office supplies on a personal credit card, resulting in a $600 credit excess on your unadjusted trial balance. The adjusted trial balance would correct the error by adding a $600 debit to expenses.
Adjusted trial balances can also remove advanced payments or take into account liabilities that have not been incurred during the accounting period but should be factored into financial reports. These types of adjustments don’t necessarily correct for errors in the unadjusted balance, but they can result in more accurate reporting by identifying and accounting forassets and liabilitiesnot reflected in the general ledger.
When should a business use a trial balance?
With modern accounting tools, credit and debit balances are checked against each other automatically, making trial balances somewhat obsolete. However, some businesses prepare trial balances as an internal check before issuing official financial statements. Trial balances can help an accounting team generate a balance sheet, check the accuracy of their double-entry accounting practices, and identify any errors in their accounting, such as transactions that have been entered in the wrong account.
Business owners may also choose to prepare a trial balance in the middle of a standard reporting period to assess financial position and ensure that accounting systems are on track.
Trial balances FAQ
What are the three main uses of a trial balance?
Trial balances have three main uses: identifying errors, providing a summary of account performance, and helping accounting teams prepare financial statements. By assessing whether or not debit balances and credit balances are equal, trial balances can audit an accounting system’s accuracy, uncovering errors occurring in journal entries and identifying transactions that have been entered in the wrong account. Trial balances can summarize account performance, providing an overview of individual account balances. Trial balances gather information that aids in the preparation of financial statements.
Who uses the trial balance?
Bookkeepers or accountants will prepare a trial balance before issuing formal financial statements. Business owners can also use them as a summary of account performance during an accounting period.
What are the parts of trial balance?
Trial balance sheets contain all of a business’s accounts that experience debits or credits during a given reporting period, the amount credited or debited to each account, the account numbers, the dates of the reporting period, and the total sums of debits and credits entered during that time.