Trial Balances Explained: What To Include in a Trial Balance — Backoffice (2022)

Accounting systems offer many opportunities to introduce errors. For novice bookkeepers, double-entry accounting can be confusing—even a professional accountant is prone to hitting the Enter key at the wrong time or accidentally debiting $10,000 to office supplies instead of accounts receivable.

A trial balance is a tool used by accountants to check that the general accounting ledger is accurate and to minimize errors that occur in a company’s financial statements. These internal financial reports can help verify the accuracy of double-entry accounting systems and identify errors before any critical external financial statements are issued.

Although a trial balance indisputably proves that no errors exist anywhere in a business’s accounting system, it can point out inaccuracies and help identify and correct errors in the accounts in the general ledger.

What is a trial balance?

A trial balance is a list of credit entries and debit entries that businesses use to internally audit their double-entry accounting systems. The goal is to verify that the sum of all debits equals the sum of all credits and to identify whether any entries have been recorded in the wrong account.

In double-entry accounting, a credit to any account must be offset by a debit to another account. While the general ledger will list individual credit entries and debit entries for each transaction, a trial balance totals the credit balance and debit balance by account, calculating the total credit balance and debit balance at the bottom. If your general ledger is accurate, the debit balance will equal the credit balance.

Today, credit balances and debit balances are checked automatically, mostly eliminating the need to create a trial balance document. However, trial balances are still useful for accountants who need to check their work and for auditors who may need to understand the accounts to be audited.

What does a trial balance include?

A trial balance document lists all the accounts from the general ledger, with two columns: one for debits and one for credits. A trial balance usually includes five elements:

• Credits and debits to each account from transactions during the accounting period
• The name of the associated account
• The relevant account number
• Accounting period date
• Total sum of debit balance and credit balance

Example of a trial balance

Here is an example of a trial balance.

Trial Balance for the period 1/1/2022 to 31/3/2022
Account number	Account name	debit	Credit
101	Cash	$1,825	$400
102	Account not yet received	$725	$625
105	Inventory	$400	$300
201	Unpaid account	$0	$1,725
302	common stock	$0	$275
401	Sales revenue	$0	$925
502	Credit card spending account	$450	$0
505	Utility expense account	$550	$0
507	Cost of goods sold	$300	$0
Balance		$4,250	$4,250

In this example, the total credit balance equals the total debit balance. While this alone cannot confirm that all entries have been entered correctly, it is a good sign that your account is accurate. Discrepancies between balances mean there is an error somewhere in the accounting system.

What is an adjusted trial balance?

An adjusted trial balance is a type of trial balance that is issued after the initial trial balance is prepared. Adjusted trial balances take into account missing or misrepresented information in the general ledger and can correct errors identified in the initial report.

For example, say you buy $600 worth of office supplies on a personal credit card, resulting in a $600 excess credit on your unadjusted trial balance. The adjusted trial balance will correct the error by adding a $600 debit to the expense.

Adjusted trial balances may also remove prepayments or account for liabilities that have not been incurred in the accounting period but should be factored into the financial statements. This type of adjustment does not necessarily correct the error in the unadjusted balance, but it can result in more accurate reporting by identifying and accounting for assets and liabilities not shown in the general ledger.

When should a business use a trial balance?

With modern accounting tools, credit and debit balances check against each other automatically, making trial balances somewhat obsolete. However, some businesses prepare trial balances as an internal check before issuing official financial statements. Trial balances can help accounting teams generate balance sheets, check the accuracy of their double-entry accounting practices and identify any errors in their accounting, such as transactions that have been entered in the wrong account.

Business owners may also choose to prepare a trial balance in the middle of a standard reporting period to assess the financial position and ensure the accounting system is on track.

Trial balance FAQ

What are the three main uses of a trial balance?

Trial balances have three main uses: identify errors, provide a summary of account performance, and help the accounting team prepare financial statements. By evaluating whether debit balances and credit balances are equal or not, a trial balance can audit the accuracy of the accounting system, reveal errors in journal entries and identify transactions that have been entered in the wrong account. Trial balances can summarize account performance, providing an overview of individual account balances. Trial balances gather information that helps in the preparation of financial statements.

Who uses a trial balance?

The bookkeeper or accountant will prepare a trial balance before issuing the official financial statements. Business owners can also use it as a summary of account performance during the accounting period.

What is the trial balance section?

A trial balance contains all business accounts that experienced debits or credits during a given reporting period, the amount credited or debited to each account, the account number, the date of the reporting period and the total amount of debits and credits entered during that time.

source: https://www.shopify.co.id/blog/trial-balance