Trial balance Definition & Meaning

trial balance definition in accounting

The goal with a trial balance report is to make sure these two columns match at the end – if not, it indicates there may be an inaccuracy somewhere in the accounting records. As evidenced by this example, the sum of the debit amounts is equal to the sum of the credit amounts, thus verifying that all entries have been correctly recorded. Furthermore, it is a valuable tool in preparing financial statements such as balance sheets and income statements. The main user of the trial balance is the general ledger accountant (or the bookkeeper in a smaller business). This person uses it as part of the month-end and year-end closing process, to ensure that the debit and credit totals match. It can help prevent potential material misstatements in financial statements due to incorrect journal entries or other errors.

trial balance definition in accounting

The accountant needs to make sure that the ledgers are correctly recorded according to the accounting equation so that the financial statements are mathematically correct. This is one of the reasons why the accountant needs to prepare a trial balance. It is important to note that the unadjusted and adjusted trial balance is not the financial statements. It is the records used to prepare the drafting financial statements and double-checks the mathematical accuracy of ledgers. The trial balance is strictly a report that is compiled from the accounting records.

What is a trial balance used for?

It helps to verify that the total of all accounts in the general ledger is equal after posting the closing entries. The totals of the debit and credit columns must agree irrespective of the method is used for preparing Trial Balance. This is because of the dual effect, i.e. every debit has an equivalent credit, and it indicates that the trial balance does not contain any clerical errors. However, this is not absolute proof of accuracy, as an error of principle, an error of omission and compensating errors may still be there.

  • Once all your accounts and amounts have been entered into the trial balance, add up both sides to ensure equal totals.
  • The statement which is prepared at a particular date with the ledger account balances to test the arithmetical accuracy of the ledger accounts and also to facilitate preparation of financial statements is called a trial balance.
  • All the adjustments that make into the system will automatically affect the trial balance.
  • By following these steps, you can create an accurate trial balance that will serve as a starting point for reconciling your accounts and ensuring the accuracy of your financial statements.

For example, an accounts payable clerk records a $100 supplier invoice with a debit to supplies expense and a $100 credit to the accounts payable liability account. The debit should have been to the utilities expense account, but the trial balance will still show that the total what is a trial balance amount of debits equals the total number of credits. A trial balance is a financial report showing the closing balances of all accounts in the general ledger at a point in time. Creating a trial balance is the first step in closing the books at the end of an accounting period.

What is a Trial balance?

Once all your accounts and amounts have been entered into the trial balance, add up both sides to ensure equal totals. If they are not, there is an error somewhere in your calculations or data entry process, and you will need to go back and check it. A post-closing trial balance is an essential part of accounting and a type of working trial balance.

The error could be a mistake in recording a transaction, a misclassification of an account, or a mathematical error. By identifying the error, the accounting department can take corrective action to ensure that the company’s financial statements are correct. To prepare a trial balance, you will need the closing balances of the general ledger accounts. The trial balance is prepared after posting all financial transactions to the journals and summarizing them on the ledger statements.

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