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. A trial balance sheet is a report that lists the ending balances of each account in the chart of accounts in balance sheet order.
How Do You Prepare a Trial Balance?
The trial balance simply records all of the transactions listed in your general ledger accounts on a separate spreadsheet so you can ensure that your journal entries are balanced and accurate. Companies initially record their business transactions in bookkeeping accounts within the general ledger. Depending on the kinds of business transactions that have occurred, accounts in the ledgers could have been debited or credited during a given accounting period before they are used in a trial balance https://www.kelleysbookkeeping.com/ worksheet. Furthermore, some accounts may have been used to record multiple business transactions. As a result, the ending balance of each ledger account as shown in the trial balance worksheet is the sum of all debits and credits that have been entered to that account based on all related business transactions. Once all ledger accounts and their balances are recorded, the debit and credit columns on the trial balance are totaled to see if the figures in each column match each other.
Correcting Errors in the Trial Balance
Each account should include an account number, description of the account, and its final debit/credit balance. In addition, it should state the final date of the accounting period for which the report is created. The main difference from the general ledger is that the general ledger shows all of the transactions by account, whereas the trial balance only shows the account totals, not each separate transaction. When the trial balance is first printed, it is called the unadjusted trial balance. The adjusted trial balance is typically printed and stored in the year-end book, which is then archived. Finally, after the period has been closed, the report is called the post-closing trial balance.
- Accounting and bookkeeping professionals might use a trial balance to perform an internal audit of the company’s finances.
- You’ll also need to close each balance to ensure that you focus on a specific time — usually, the duration of your accounting cycle, whether monthly or quarterly.
- Companies can use a trial balance to keep track of their financial position, and so they may prepare several different types of trial balance throughout the financial year.
- An entry could have been made in reverse, where the amount to be debited was actually credited, while the account to be credited was debited.
- If totals are not equal, it means that an error was made in the recording and/or posting process and should be investigated.
Types of Trial Balances
The trial balance is used to test the equality between total debits and total credits. There are no special conventions about how trial balances should be prepared, and they may be completed as often as a company needs them. A trial balance is often used as a tool to keep track of a company’s finances throughout the year, whereas a balance sheet is a legal statement of the financial position of a company at the end of a financial year. The key difference between a trial balance and a balance sheet is one of scope.
Journals and ledgers also help you to capture both the debit and the credit sides of transactions. Accounting and bookkeeping professionals might use a trial balance to perform an internal audit of the company’s finances. While modern accounting software can minimize data entry errors and similar mistakes, trial balances still have their uses among internal company leadership. For example, Cash has a final balance of $24,800 on the debit side. This balance is transferred to the Cash account in the debit column on the unadjusted trial balance. Accounts Payable ($500), Unearned Revenue ($4,000), Common Stock ($20,000) and Service Revenue ($9,500) all have credit final balances in their T-accounts.
In other words, a trial balance shows a summary of how much Cash, Accounts Receivable, Supplies, and all other accounts the company has after the posting process. All accounts having an ending balance are listed in the trial balance; usually, the accounting software automatically blocks all accounts having a zero balance from appearing in the report. Before the errors can be identified and corrected, https://www.kelleysbookkeeping.com/should-you-hire-a-virtual-accountant/ a temporary suspense account is created to match the trial balance totals temporarily. Under balance method, only the balances of all the ledger accounts are shown in the trial balance. Finally, if some adjusting entries were entered, it must be reflected on a trial balance. In this case, it should show the figures before the adjustment, the adjusting entry, and the balances after the adjustment.
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Preparing an unadjusted trial balance is the fourth step in the accounting cycle. A trial balance is a list of all accounts in the general ledger that have nonzero balances. A trial balance is an important step in the accounting process, because it helps identify any computational errors throughout the first three steps in the cycle. Once a book is balanced, an adjusted trial balance can be completed. This trial balance has the final balances in all the accounts, and it is used to prepare the financial statements.