Trial Balance

What Is a Trial Balance?

A trial balance is a worksheet with two columns, debits and credits, listing every account in your general ledger along with its current balance. If your bookkeeping is accurate using double-entry methods, the total of all debit balances should equal the total of all credit balances.

For example, a trial balance might show debit balances of $50,000 in Cash, $20,000 in Accounts Receivable, and $30,000 in Equipment (total debits: $100,000), with credit balances of $40,000 in Accounts Payable, $35,000 in Owner's Equity, and $25,000 in Revenue (total credits: $100,000). Since they match, the books balance.

Why It Matters for Your Business

The trial balance is a critical quality control step in the accounting process that catches errors before they reach your financial statements.

• Error checking: If debits do not equal credits, there is an error somewhere in your records. The trial balance helps you catch this before producing reports that would contain mistakes.
• Statement preparation: The trial balance provides the raw data from which the income statement and balance sheet are prepared. It is the bridge between daily bookkeeping and formal financial reporting.
• Audit support: Auditors use the trial balance as a starting point for their review. A clean trial balance demonstrates that your basic bookkeeping is in order.

Keep in mind that a balanced trial balance does not guarantee error-free books. Some errors, like recording a transaction in the wrong account or completely omitting a transaction, will not cause an imbalance. Additional review procedures are needed to catch these types of mistakes.