The Trial Balance : Our Definition, With Examples

The trial balance is a type of accounting report which lists both the debit and credit balances of the company accounts. It is used in the double-entry accounting system. What’s the real use of a trial balance ? How to Format a trial balance report ? How to prepare and adjust a trial balance ? We answer all of your questions and provide examples.

 

What’s The Use of a Trial Balance

A trial balance is the first step towards preparing financial statements.The primary use of this report is for adjusting entries. This can be done at the end of the month, financial year or other accounting period, depending on the needs of your business.

The trial balance is also useful for:

• Making sure the credit and debit balances totals are equal
• Verifying the accuracy of the accounting entries
• Making sure there haven’t been any data entry or processing errors
• Checking for mathematical errors
• Viewing the balance of each account, in one single location
• Preparing the financial statements at the end of the financial year

A trial balance is usually labelled with the company name and the date on which the report was generated, as well as the accounting period it covers. 

 

How to Format a Trial Balance Report

The trial balance is presented in the form of a table. On the left, there is list of all of the accounts with their accounting codes and names and/or descriptions. On the right, there are two columns, one for debit and another for credit, referring to the ending debit balance and ending credit balance (if any). The asset account and the expenses account come under the debit column of the trial balance, and the expenses, capital and revenue accounts come under credit. At the bottom of the table, you’ll find the total of the company’s debit and credit balances. If the two totals aren’t equal, this means that an input error has been recorded and you must carry out checks.

Note that even when the debit and credit totals shown on the trial balance are equal, this doesn’t mean that there aren’t any errors in the accounts at all. For example, a debit could have been recorded under the wrong account category, which would mean that the debit total would still be correct, but the individual account categories would not reflect the actual transactions made.

 

Trial Balance Example

The following is an example of a trial balance for a company.

Trial Balance on the 28th of January 2020

 

Preparing a Trial Balance

Although you can generate this accounting report manually using a spreadsheet, we recommend using an accounting software, such as Kiwili, to avoid tedious calculations and potential mistakes. The year-end trial balance is typically used by auditors at the beginning of an audit, so they can use the account balances from the trial balance report as a starting point for conducting an audit in their auditing software. 

 

Adjusting the Trial Balance

When the trial balance is first generated, it is referred to as the unadjusted trial balance. Once the accountant(s) has rectified any mistakes found and made the necessary adjustments, the report is then called the adjusted trial balance. Usually a paper copy of this report is stored in the archives within the year-end book. 

In a large organization with a number of subsidiaries operating under a parent company, a trial balance from each subsidiary may be used to compile results for the organization as a whole.

The adjusted trial balance report may combine the existing debit and credit columns into a single column representing the unadjusted trial balance, followed by a column detailing the adjustments made, and then a final column containing the new adjusted trial balance. 

 

Using a Software for Your Accounting Reports

All accounts with an ending balance should be included in the trial balance. Usually, an accounting software automatically skips over any accounts with a zero balance when generating the trial balance, so as not to include them in the report unnecessarily.

In addition to the trial balance, there are numerous other accounting documents that are essential for the self-employed, small businesses and SMEs. Income statements, balance sheets, tax reports, etc. An online accounting software will be your best ally for carrying out these reports, and will generate them for you in a single click. Learn more about business accounting and how to do it by yourself 

Before you go, you might be interested in our latest post, The Golden Rules Of Accounting For Micro-Entrepreneurs: Commandments To Abide By. Start your free trial today with Kiwili and manage your business with ease by setting your accounting on automatic pilot.