What Is a Trial Balance?

Definition of Trial Balance?

A trial balance is a bookkeeping worksheet in which all ledger balances are aggregated into equal debit and credit account column totals. A trial balance is prepared by a corporation on a regular basis, usually at the end of each reporting period. A trial balance's main aim is to check that the entries in a company's bookkeeping system are mathematically correct.

How Does It Work?

The purpose of preparing a trial balance for a business is to detect any mathematical problems in the double-entry accounting system. The trial balance is considered balanced if the total debits equal the total credits, and there should be no mathematical errors in the ledgers. However, this does not rule out the possibility of accounting system problems. For example, poorly classified transactions or those that are simply missing from the system could nevertheless be major accounting errors that the trial balance technique would miss.

TAKEAWAYS IMPORTANT

A trial balance is a worksheet with two columns, one for debits and the other for credits, that guarantees that a company's accounting is technically valid.

All business transactions for a corporation over a certain period are included in the debits and credits, which contain the sum of such accounts as assets, expenses, liabilities, and revenues.

There are no mathematical faults if the debits and credits of a trial balance are equal, but there may still be flaws or errors in the accounting processes.

A Trial Balance's Requirements

Business transactions are initially recorded in bookkeeping accounts in the general ledger. Accounts in the ledgers may have been debited or credited during a specific accounting period before being included in a trial balance worksheet, depending on the types of business transactions that happened. It's also possible that some accounts were utilized to record several business transactions. As a result, the trial balance worksheet's concluding balance for each ledger account is the sum of all debits and credits submitted to that account based on all linked business activities.

The accounts of asset, expense, and loss should all have a negative balance at the conclusion of an accounting period, whereas the accounts of liability, equity, income, and gain should all have a credit balance. During the accounting period, however, certain accounts of the former type may have been credited and certain accounts of the latter type may have been debited when related business transactions reduce their respective accounts' debit and credit balances, resulting in an opposite effect on those accounts' ending debit and credit balances. The account titles are placed to the far left of the two columns on a trial balance worksheet, with all the debit balances in the left column and all the credit balances in the right column. 

Particular Points to Consider

After all, the ledger accounts and their balances are displayed in their usual format on a trial balance worksheet; add up all debit and credit balances separately to establish that total debits and total credits are equal. This consistency ensures that no unequal debits and credits were entered wrongly during the double-entry recording process. A trial balance, on the other hand, is unable to detect bookkeeping errors that are not basic mathematical errors. A trial balance would nevertheless indicate a flawless balance between total debits and credits if equal debits and credits were placed into the wrong accounts, a transaction was not recorded, or offsetting errors were made with a debit and credit at the same time.

Format of Trial Balance:

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