What Is a Trial Balance?
A trial balance is a report listing every account in the general ledger with its closing balance, arranged in debit and credit columns. Its purpose is to confirm that total debits equal total credits before financial statements are prepared. It is an internal working document, not a financial statement itself.
What a Trial Balance Looks Like
Accounts run down the page in ledger order, usually assets first, then liabilities, equity, revenue, and expenses. Each balance appears in either the debit or the credit column depending on its normal balance, and the two columns are totalled at the bottom.
EXAMPLE
Trial Balance at 31 March
Cash: debit $42,000
Accounts Receivable: debit $86,000
Inventory: debit $154,000
Accounts Payable: credit $71,000
Share Capital: credit $100,000
Retained Earnings: credit $63,000
Revenue: credit $310,000
Cost of Goods Sold: debit $186,000
Operating Expenses: debit $76,000
Totals: debits $544,000, credits $544,000
Equal totals mean the ledger is arithmetically consistent. It does not mean the ledger is correct, which is the distinction that matters most about this report.
The Three Types of Trial Balance
The same report is run at three points in the close, and each answers a different question.
- Unadjusted trial balance:
run after all routine transactions are posted but before any adjusting entries. It is the starting point for the close. - Adjusted trial balance:
run after accruals, prepaid amortization, depreciation, and other adjusting entries are posted. This is the version the financial statements are built from. - Post-closing trial balance:
run after closing entries move revenue and expense balances into retained earnings. Only permanent accounts remain, so it contains assets, liabilities, and equity only.
A useful check on the third: if any revenue or expense account still shows a balance on the post-closing trial balance, the closing entries did not complete correctly.
Trial Balance vs. General Ledger
The general ledger holds every individual transaction posted to every account. The trial balance holds only the resulting closing balance for each account, on one page.
- Detail:
the ledger shows each transaction line; the trial balance shows one number per account. - Length:
a ledger can run to thousands of pages; a trial balance usually fits on one or two. - Purpose:
the ledger is the record; the trial balance is a check on it. - Direction of use:
when a trial balance figure looks wrong, the ledger is where you go to find out why.
The trial balance is derived from the ledger, so the two can never disagree. If a trial balance does not balance, the error is in the ledger, not in the report.
Trial Balance vs. Balance Sheet
These are frequently confused because both list balances, but they differ in audience, scope, and standing.
- Audience:
the trial balance is internal; the balance sheet is published to external users. - Scope:
the trial balance includes revenue and expense accounts; the balance sheet shows only assets, liabilities, and equity. - Structure:
the trial balance is a flat list in debit and credit columns; the balance sheet is grouped into current and non-current classifications. - Standing:
the trial balance is a working document with no formal status; the balance sheet is a financial statement prepared under an accounting framework.
The balance sheet is produced from the adjusted trial balance, by taking the permanent accounts and presenting them in the required format.
Errors a Trial Balance Will Not Catch
A balanced trial balance is often mistaken for proof that the books are right. It only proves that debits and credits are equal. Five error types pass through it completely undetected:
- Errors of omission:
a transaction never recorded at all. Nothing is missing from either column because nothing was entered. - Errors of commission:
the right amount posted to the wrong account of the same type, such as one customer charged instead of another. - Errors of principle:
a transaction posted to the wrong class of account, such as a capital purchase recorded as an expense. - Compensating errors:
two separate mistakes of equal size on opposite sides that cancel out. - Complete reversal:
an entry with the debit and credit the wrong way round. It balances perfectly and moves both accounts in the wrong direction.
This is why a balanced trial balance is a starting point for review rather than a conclusion. The balance sheet reconciliations behind the numbers are what actually establish that the accounts are right.
How to Prepare a Trial Balance
- Confirm all transactions are posted.
Any unposted entry makes the report incomplete regardless of whether it balances. - Extract closing balances.
Take the final balance for every general ledger account. - Place each in the correct column.
Assets and expenses in debits, liabilities, equity, and revenue in credits. - Total both columns.
Sum the debit and credit columns separately. - Investigate any difference.
A discrepancy divisible by nine often indicates transposed digits; one that is exactly double an account balance suggests an entry posted on the wrong side. - Review for reasonableness.
Scan for accounts with the wrong sign or balances inconsistent with the prior period.
Frequently Asked Questions About Trial Balance
1. What is a trial balance?
A trial balance is an internal report listing every general ledger account with its closing balance in debit and credit columns, used to confirm that total debits equal total credits before financial statements are prepared. It is not itself a financial statement.
2. What are the three types of trial balance?
Unadjusted, run before adjusting entries. Adjusted, run after accruals, prepaid amortization, and depreciation are posted, which is what the financial statements are built from. Post-closing, run after closing entries, containing only assets, liabilities, and equity.
3. What is the difference between a trial balance and a general ledger?
The general ledger records every individual transaction in every account. The trial balance shows only the resulting closing balance for each account on a single page. The trial balance is derived from the ledger, so the two can never disagree.
4. What is the difference between a trial balance and a balance sheet?
A trial balance is an internal working document including revenue and expense accounts, listed in debit and credit columns. A balance sheet is a published financial statement showing only assets, liabilities, and equity, grouped into current and non-current classifications.
5. What errors will a trial balance not catch?
Five types pass undetected: a transaction omitted entirely, the right amount posted to the wrong account of the same type, a transaction posted to the wrong class of account, two errors that cancel each other out, and an entry with debit and credit fully reversed.
6. How do you prepare a trial balance?
Confirm every transaction is posted, extract the closing balance for each ledger account, place each in the debit or credit column according to its normal balance, total both columns, and investigate any difference before reviewing the balances for reasonableness.
7. What is the purpose of a trial balance?
To verify that the ledger is arithmetically consistent before financial statements are prepared, and to give a single-page view of every account balance for review. It confirms debits equal credits, not that the underlying entries are correct.
