Trial Balance: Summarizes All General Ledger Accounts

accounting trial balance example

It is prepared at the end of a particular period to indicate the correct nature of the balances of various accounts. A balanced trial balance ascertains the arithmetical accuracy of financial records. The adjusted trial balance includes revenue and expense balances and asset, liability, and equity balances.

accounting trial balance example

“It comes down to that famous phrase ‘double-entry bookkeeping’ – every debit has a credit, and vice versa,” Jackson summarises. A trial balance is the accounting equation of our business laid out in detail. It has our assets, expenses and drawings on the left (the debit side) and our liabilities, revenue and owner’s equity on the right (the credit side). When you prepare your trial balance, include as much detail as possible, such as the date of the accounting period. This information will help you stay organized if you need to refer to your previous trial balances. For example, senior management may appreciate regular trial balance reports, as they put the company’s most important information in one place.

Tips for ensuring greater accuracy

Hence, the trial balance is less important for bookkeeping purposes since it is almost certain that the general ledger and the trial balance will have the debits equal to the credits. Although a trial balance may equal the debits and credits, it does not mean the figures are correct. Errors can still occur in data entry of wrong amounts or posted to the incorrect account code.

Debits and credits of a trial balance must tally to ensure that there are no mathematical errors. However, there still could be mistakes or errors in the accounting systems. A trial balance can be used to assess the financial position of a company between full annual audits. It is also important to note that even when the trial balance is considered balanced, it does not mean there are no accounting errors. For example, the accountant may have failed to record an account or classified a transaction incorrectly.

Reasons To Outsource Bookkeeping Services for Small Business

It is prepared again after the adjusting entries are posted to ensure that the total debits and credits are still balanced. It is usually used internally and is not distributed to people outside the company. The unadjusted trial balance can be called an initial draft to check the integrity of general ledger accounts made to date. However, the basic rule of all the debit and credit balances to match holds true to check any possible errors.

  • It is important to go through each step very carefully and recheck your work often to avoid mistakes early on in the process.
  • The total of the debit side is placed in the debit column and the total of the credit side in the credit column of the trial balance.
  • This trial balance example includes all the balance sheet items first, followed by the profit and loss account.
  • 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.
  • Every account in the general ledger can have only one entry, multiple entries, or no entry at all for the accounting period under question.

It is a statement of debit and credit balances that are extracted on a specific date. The purpose of the trial balance is to test the equality between total debits and total credits after the posting process. This trial balance is called an unadjusted trial balance (since adjustments are not yet accounting trial balance example included). Keeping all this in mind, the ending balance of all the ledger accounts is taken in a trial balance and added to check for certain kinds of errors. The thumb rule is that all the credit and debit balances should tally; a mismatch represents underlying errors in recording transactions.

Trial balanceTesting the equality of debits and credits

Get access to all of our books, spreadsheets, academic papers, cheat sheet, audio vault, videos, and more. This is where you can make the mistake of recording items in the wrong column or even the wrong account. This will significantly alter the accuracy of your completed trial balance and cost you valuable time chasing down your mistake. Depending on your accounting system, you may need to combine multiple expenses and sources of income. For example, your accounts payable account may contain multiple smaller entries, which you’ll need to total before transferring this data to your trial balance.

accounting trial balance example