What is a Trial Balance? Definition

The adjusted trial balance is typically printed and stored in the year-end book, which is then archived. Finally, after the period has been closed, the report is called the post-closing trial balance. This post-closing trial balance contains the beginning balances for the next year’s accounting activities.

• Another limitation of a trial balance is that it can only be used to check the accuracy of the ledger if all the transactions have been recorded in the ledger.
• A trial balance is a worksheet with two columns, one for debits and one for credits, that ensures a company’s bookkeeping is mathematically correct.
• Entry of incorrect amount in ledger statement – For Example, a credit sale of $ 1000 to Anya wrongly posted her account at $ 100.
• Accounting TransactionsAccounting Transactions are business activities which have a direct monetary effect on the finances of a Company.
• The financial statements are significant documents that capture the financial state of a company at a given point in time.
• Posting an item to the right side but in the wrong account – If a purchase of $ 100 from Carl James has been credited to Mathew Woods instead of Carl James, it will not detect such an error.

Nevertheless, there are situations where debit accounts have been credited and credit accounts have been debited during the accounting period. This occurs as a result of certain business transactions that reduce the debit and credit balances of the respective accounts. A trial balance is a report that lists the balances of all general ledger accounts of a company at a certain point in time. The accounts reflected on a trial balance are related to all major accounting items, including assets, liabilities, equity, revenues, expenses, gains, and losses. It is primarily used to identify the balance of debits and credits entries from the transactions recorded in the general ledger at a certain point in time.

Accounting software

The main reason for the trial balance to match is the ‘Double Entry System’ of accounting. According to the double entry system, every transaction is recorded twice, once on the debit side and the other on the credit side. Though it is not conclusive proof of the correctness of all books of accounts because there can be some errors despite the fact that the total of both sides of the trial balance is matching.

A trial balance allows a company to quickly gauge its books and to know whether or not it’s standing on solid ground. It can provide an trial balance definition in accounting indication for any internal auditing work to do as well. If the two columns are unequal, it indicates that something needs to be fixed.

Objectives of the Trial Balance

A trial balance functions as a checkup for an organization, to identify errors in bookkeeping, or as an indication for places to audit. Assets are listed first, then liabilities, then equities and finally expenses. Debits and credits are the two entries utilized in double-entry bookkeeping. These entries record the changes in value resulting from a financial transaction. Every transaction is entered as a debit to one account, and a credit to another.

Trial balance is the first step in preparing the financial statements of any firm. Suppose if the total of both debit and credit sides is not matching, then we have to check the journal entries again and find out what was accounted for wrongly with the transaction. An error of omission is when a transaction is completely omitted from the accounting records.

AccountingTools

Sub-ledgers are the individual accounts where transactions are first recorded, before being combined with the general ledger. As you can see, a trial balance plays a key role in keeping a company’s books accurate and up-to-date. Comparing a trial balance to reports from previous periods can highlight problem areas. Both internal and external auditors use the trial balance to determine which accounts to dig deeper into. Fortunately, there are tools and systems built to handle this financial complexity.

The columns total in such a way that both column totals balance our (i.e are equal). Each accounting entry’s total debits and credits must match at the end of the accounting period. If the debit and credit totals do not match in the trial balance, it means there is one or more unbalanced transactions. A trial balance is defined as a bookkeeping or accounting report that shows all of a company’s general ledger accounts at a specific point in time.