Trial Balance Definition - Investopedia

A trial balance is a bookkeeping worksheet in which the balance of all ledgers are compiled into debit and credit account column totals that are equal. CorporateFinance&Accounting Accounting Accounting TheEvolutionofAccountingandAccountingTerminology WhatIsaTrialBalance? Atrialbalanceisabookkeepingworksheetinwhichthebalanceofallledgersarecompiledintodebitandcreditaccountcolumntotalsthatareequal.Acompanypreparesatrialbalanceperiodically,usuallyattheendofeveryreportingperiod.Thegeneralpurposeofproducingatrialbalanceistoensuretheentriesinacompany'sbookkeepingsystemaremathematicallycorrect. 1:24 TrialBalance HowaTrialBalanceWorks Preparingatrialbalanceforacompanyservestodetectanymathematicalerrorsthathaveoccurredinthedouble-entryaccountingsystem.Ifthetotaldebitsequalthetotalcredits,thetrialbalanceisconsideredtobebalanced,andthereshouldbenomathematicalerrorsintheledgers.However,thisdoesnotmeantherearenoerrorsinacompany'saccountingsystem.Forexample,transactionsclassifiedimproperlyorthosesimplymissingfromthesystemcouldstillbematerialaccountingerrorsthatwouldnotbedetectedbythetrialbalanceprocedure. KeyTakeaways Atrialbalanceisaworksheetwithtwocolumns,onefordebitsandoneforcredits,thatensuresacompany’sbookkeepingismathematicallycorrect. Thedebitsandcreditsincludeallbusinesstransactionsforacompanyoveracertainperiod,includingthesumofsuchaccountsasassets,expenses,liabilities,andrevenues. Debitsandcreditsofatrialbalancebeingequalensuretherearenomathematicalerrors,buttherecouldstillbemistakesorerrorsintheaccountingsystems. RequirementsforaTrialBalance Companiesinitiallyrecordtheirbusinesstransactionsinbookkeepingaccountswithinthegeneralledger.Dependingonthekindsofbusinesstransactionsthathaveoccurred,accountsintheledgerscouldhavebeendebitedorcreditedduringagivenaccountingperiodbeforetheyareusedinatrialbalanceworksheet.Furthermore,someaccountsmayhavebeenusedtorecordmultiplebusinesstransactions.Asaresult,theendingbalanceofeachledgeraccountasshowninthetrialbalanceworksheetisthesumofalldebitsandcreditsthathavebeenenteredtothataccountbasedonallrelatedbusinesstransactions. Acompany’stransactionsarerecordedinageneralledgerandlatersummedtobeincludedinatrialbalance.  Attheendofanaccountingperiod,theaccountsofasset,expenseorlossshouldeachhaveadebitbalance,andtheaccountsofliability,equity,revenueorgainshouldeachhaveacreditbalance.However,certainaccountsoftheformertypemayhavealsobeencreditedandcertainaccountsofthelattertypemayhavealsobeendebitedduringtheaccountingperiodwhenrelatedbusinesstransactionsreducetheirrespectiveaccounts'debitandcreditbalances,anoppositeeffectonthoseaccounts'endingdebitorcreditbalances.Onatrialbalanceworksheet,allthedebitbalancesformtheleftcolumn,andallthecreditbalancesformtherightcolumn,withtheaccounttitlesplacedtothefarleftofthetwocolumns. SpecialConsiderations Afterall,theledgeraccountsandtheirbalancesarelistedonatrialbalanceworksheetintheirstandardformat,addupalldebitbalancesandcreditbalancesseparatelytoprovetheequalitybetweentotaldebitsandtotalcredits.Suchuniformityguaranteestherearenounequaldebitsandcreditsthathavebeenincorrectlyenteredduringthedouble-entryrecordingprocess.However,atrialbalancecannotdetectbookkeepingerrorsthatarenotsimplemathematicalmistakes.Ifequaldebitsandcreditsareenteredintothewrongaccounts,atransactionisnotrecordedoroffsettingerrorsaremadewithadebitandcreditatthesametime,atrialbalancewouldstillshowaperfectbalancebetweentotaldebitsandcredits. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms HowGeneralLedgersWork Ageneralledgeristherecord-keepingsystemforacompany’sfinancialdata,withdebitandcreditaccountrecordsvalidatedbyatrialbalance. more WhatIsReconciliationinAccounting? Reconciliationisanaccountingprocessthatcomparestwosetsofrecordstocheckthatfiguresarecorrect,andcanbeusedforpersonalorbusinessreconciliations. more AccountingCycle Theaccountingcyclerecordsandanalyzesaccountingeventsrelatedtoacompany'sactivities. more AccountsPayable(AP) "Accountspayable"(AP)referstoanaccountwithinthegeneralledgerrepresentingacompany'sobligationtopayoffashort-termdebttoitscreditorsorsuppliers. more WhatIsDisbursement? Disbursementistheactofpayingoutordisbursingmoney,whichcanincludemoneypaidoutforaloan,torunabusiness,orasdividendpayments. more BreakingDownDebits Adebitisanaccountingentrythatresultsineitheranincreaseinassetsoradecreaseinliabilitiesonacompany'sbalancesheet. more PartnerLinks RelatedArticles Accounting HowtoCalculateCreditandDebitBalancesinaGeneralLedger Accounting TheDifferenceBetweenaGeneralLedgerandaGeneralJournal Accounting HowtoUseExcelasaGeneralAccountingLedger CorporateFinance&Accounting LearnAboutthe8ImportantStepsintheAccountingCycle Accounting HowDidtheFieldofAccountingEvolve? InternationalMarkets What'sIncludedinaCountry'sBalanceofPayments?