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What is a trial balance?

Putting together a trial balance sheet is one way to make sure that your business’s accounts are on the right track. Here’s everything you need to know about the trial balance meaning in accounting, including its purpose and correct format.

Understanding trial balance

A trial balance is used in bookkeeping to list all the balances in your business’s general ledger accounts. It consists of two columns: one for debit balances, and one for credit balances. To keep the books balanced, the total of each column should be equal.

In this way, the trial balance gives a simple way to check that every transaction includes a debit and corresponding credit. This gives you the fundamental basis of your balance sheet, as well as your profit and loss account. You can prepare your trial balance at regular intervals to make sure your books are balanced. For example, many organisations use trial balance accounting at the end of each reporting period.

When looking at the trial balance meaning, it’s helpful to define what would go into each side of the equation.

  • Debit balances include asset and expense accounts.

  • Credit balances include liabilities, capital, and income accounts.

Together, you’ll see the usual trial balance format of two columns contained in a single bookkeeping worksheet.

What is the purpose of the trial balance?

Essentially, recording a trial balance is the first step when preparing official financial statements. It’s a work in progress to verify your credits and debits. The trial balance is primarily used as part of the double-entry accounting system. By checking that your debits and credits are equal, you can pick up on any mathematical errors. Total debits should equal total credits for the trial balance to be correct. If there are any discrepancies in the totals, you can investigate these problems before they’re recorded on the official financial statements.

It’s important to note, however, that although performing trial balance accounting can highlight simple mathematical errors, it won’t reveal every problem in your books. Missing transactions or classification errors can occur even when recording the trial balance. The trial balance is also not an official financial statement and is only used internally.

How to record the trial balance

The general ledger is used to record all of your company’s transactions. To get started with recording the trial balance, you must first complete these ledger accounts. You can sum up the transactions using a trial balance format, making separate columns for debits and credits. The left column should show all debit balances, and the right column will show all credit balances. Add up the sums for each side to ensure that they are equal.

Trial balance example

You can have a look at the following trial balance example to see what this might look like in practice:

 

Trial Balance 30/09/2020

Debit

Credit

 

$;

$;

Bank

7,000

 

Capital

 

5,000

Office supplies

400

 

Creditor payment

 

500

Supplier payment

1,100

 

Bank loan

 

3,000

 

 

 

Total

8,500

8,500

In this example, the debit column shows payments that have been made to repay the bank, purchase office supplies, and pay a supplier invoice. These are balanced out on the other side by capital payment, a payment from a creditor, and a bank loan.

The totals equal $8,500 on both sides for the accounting period in question, meaning the books are balanced. This ensures that the balance sheet will follow the accounting principle in double-entry bookkeeping, balancing each debit with a credit. If these debits and credit didn’t match, it would be time to go back to the general ledger and see if any errors were made before this information was recorded on the official balance sheet.

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