|
Overview of Trial Balance
Definition of
Trial Balance
What is a Trial Balance? A Trial Balance is a bookkeeping worksheet in which the balances of all accounts in the General Ledger are compiled into debit and credit columns. It is prepared at the end of an accounting period (before financial statements are created) to check the mathematical accuracy of the ledger, ensuring that the total debits equal the total credits. This confirms that the accounting equation (Assets = Liabilities + Equity) is in balance.
Activities Related to
Trial Balance
Here is a list of Trial Balance related activities:Â Listing all accounts from the General Ledger along with their final debit or credit balances, Summing the total of all debit balances, Summing the total of all credit balances, Verifying that the total debits equal the total credits, Identifying and correcting errors if the totals do not match, Using the trial balance as a basis for preparing adjusting entries (leading to an adjusted trial balance), and Subsequently using the adjusted trial balance to prepare the main financial statements (Income Statement, Balance Sheet, etc.).
The Importance of
a Trial Balance
The Trial Balance is important as it serves as a crucial checkpoint in the accounting cycle. It helps detect mathematical errors made in posting transactions to the General Ledger before the formal financial statements are prepared. If debits do not equal credits, it signals an error that must be found and corrected. While a balanced trial balance doesn't guarantee the absence of all types of errors (e.g., a transaction might be omitted entirely or posted to the wrong account), it is an essential step for ensuring the integrity of the double-entry bookkeeping system.
Key Aspects of
Trial Balance
List of All Accounts
Includes every account from the company's General Ledger with its corresponding debit or credit balance.
Debit/Credit Equality Check
Its primary function is to verify that the total of all debit balances equals the total of all credit balances.
Internal Document
Primarily an internal tool for accountants and bookkeepers, not typically distributed to external stakeholders.
Prepared at Period End
Usually prepared at the end of an accounting period (month, quarter, year) before finalizing financial statements. An "adjusted trial balance" is prepared after adjusting entries.
Concepts Related to
Trial Balance
The Trial Balance is a fundamental step in the Accounting Cycle, following the posting of transactions to the General Ledger. It directly applies the principles of Double Entry Bookkeeping and the Accounting Equation by ensuring Debits and Credits are equal. An accurate trial balance is necessary before making adjusting entries and preparing the final Financial Statements such as the Income Statement and Balance Sheet.
Trial Balance
in Action:
The Adventures of Coco and Cami
Coco and Cami have recorded all their transactions for the month. Before creating their main financial reports, Professor A shows them how to make a Trial Balance.
Learn with our entrepreneurs how the Trial Balance helps them check if their debits and credits add up correctly, which is a crucial step to make sure their bookkeeping is accurate.