Trial Balance Accounting

A trial balance, sometimes abbreviated to TB, is a list of all the account balances in the accounting records on a particular date. The trial balance is used to check the arithmetic accuracy and correctness of the bookkeeping entries.

Under the method for every debit there should be a credit so a list of all the balances in the accounting records should balance.

Until a trial balance balances you cannot start the preparation of the Financial Statements. It is important to realize that although a trial balance may in fact balance, there may still be errors in the accounting records.

How do you Prepare a Trial Balance?

There are two main methods of preparing a trial balance

  1. Using Totals – in this method the totals of the debit side of the account are entered in the debit side of the trial balance, and the totals of the credit side of the account are entered into the credit side of the Trial Balance.
  2. Using Balances – the more usual method is that each individual account is totalled to give a net debit or credit balance on the account, the balance is then entered on the debit or credit side of the trial balance as appropriate.
Example trial balance using balances method
Account Debit Credit
Accounts receivable 4,000
Inventory 2,000
Cash 1,500
Accounts payable 2,000
Capital 3,000
Revenue 5,000
Purchases 2,500
Total 10,000 10,000

The two columns should be equal or there is an error in the accounting records or the TB preparation.

Why do you need a TB?

The TB is not part of the accounting records, it is extracted from the records as part of the accounting cycle to be used as the starting point for the production of the Financial Statements. It is a basic check to ensure that your accounting records balance, that the accounting equation has been satisfied, and that every debit had a corresponding credit. If the TB does not balance, assuming it has been prepared properly, it means there is an error in the accounting records.

The balancing of the TB does not however mean that the accounting records are correct, it simply means that for every debit there was a corresponding credit. It does not tell you that the debits and credits are correct or whether both sides of an entry have been completely missed out of the accounting records.

Trial Balance Accounting February 15th, 2017Team

You May Also Like

Related pages

npv example excelconvertible redeemable preferred stockdays in receivables formulasmall business spreadsheet templateamortise meaningreducing balance depreciation formulasum of the years digits method of depreciationdefine direct labor costintangible assets examples balance sheetsample of bookkeepinghow to accrue payrolldefine retained earnings statementinterpretation of gearing ratioaccounting factoringcalculating the effective annual rateaccounting equestionimpairment of accounts receivableperpetuity factorhow to calculate account receivableperpetual system of inventorythe journal entry to record a return of merchandiseexamples of contra accountslease journal entriesadjusting entries affect only expense and asset accountsformula for effective annual ratelong term borrowings definitioncapital lease lessordebtor ledgercompound annuity formulabookkeeping source documentswhat is debtors turnoverfreight prepaid and addprepaid expenses in trial balancesum of years digits method of depreciationformula for gearing ratiounpaid salaries adjusting entrydeclining balance depreciation calculatorvariable expense formuladefinition of retail shrinkadvantages of double entry system of accountingwhat is net profit margin ratiotraditional and contribution format income statementsallowance for doubtful accounts journal entriespv of annuity due formulainventory journal entries examplesformula asset turnoverwhat is meant by deferred taxjournal entry for sale of assetdoubling period formulaamortization spreadsheet xlscalculating pmtwhat is a cash disbursement journaljournal entry for creating provision for doubtful debtsmarkup and margin calculationthe accounting equation and the balance sheetcalculate payback period calculatorfixed asset turnover formulaassets equals liabilities plus capitalsample cash voucherbad debt journal entryjournal entry of bills receivablepayroll tax accounting entriesprepaid insurance adjusting entry examplesjournal entries for accumulated depreciationoutstanding salary journal entrydeferred revenue in balance sheethow to record depreciation expense in journal entrywhat is the formula for asset turnoveramortizing bondscalculate interest rate excelfv calculation in exceldebtors and creditors on balance sheethorizontal analysis of an income statement