Every company and organization must periodically check its bookkeeping to ensure that the math is correct. A trial balance is one avenue of ascertaining that mathematical accuracy. A trial balance is a worksheet that assembles all of a company\u2019s ledgers into two columns: debit and credit. The totals of each column should be equal.<\/p>\n
Companies usually compile a trial balance at the end of every fiscal quarter or reporting period. While a trial balance will identify any mathematical mistakes in bookkeeping, it will not necessarily point out other kinds of accounting errors, like omissions or inaccurate classifications.<\/p>\n
While a trial balance is limited to checking bookkeeping math, it is useful for guiding an accounting team to find many of the common errors that can surface in bookkeeping.<\/p>\n
You may be wondering, \u201cWhat a trial balance is used for?\u201d A trial balance places all of a company or organization\u2019s debits in one column and all of its credits in another. If the totals of each column match one another, then the math is correct. If there is a discrepancy, there is a mistake somewhere in the calculations.<\/p>\n
There are two types or stages of a trial balance: unadjusted and adjusted.<\/p>\n
An unadjusted trial balance is the initial compilation of ledgers as it is first generated. This version of the trial balance still contains any mathematical or clerical errors. The two balances may or may not match.<\/p>\n
Once the accounting team has identified and corrected any errors in the trial balance, the totals in each column should match. At this point, the report becomes an adjusted trial balance and is recorded or stored for annual financial records.<\/p>\n
Here are the steps to preparing a trial balance:<\/p>\n
Several common errors result in a discrepancy between the credit column total and the debit column total:<\/p>\n
Two primary methods for preparing the trial balance exist: the total method and the balance method. Under the total method, the debit and credit sides of the ledger accounts are totaled. The sum of the credit side is entered in the credit column. The sum of the debit side is entered in the debit column. The two sums should match.<\/p>\n
To help prepare\u00a0 financial statements, trial balance accounts are listed in a particular order:<\/p>\n
Assets and liabilities are listed in order of liquidity, with the most liquid assets first. Liquidity means the speed with which an asset can be turned into cash to cover liabilities. Cash and short-term accounts receivable are considered the most liquid assets.<\/p>\n
The following columns are included on an initial trial balance report:<\/p>\n
The trial balance lists all accounts that have an ending balance. Most accounting software automatically removes any accounts that have a zero balance so they do not clutter up the worksheet.<\/p>\n
Below is an example of a trial balance:<\/p>\n
| <\/td>\n | Unadjusted Trial Balance<\/td>\n | Adjusting Entries<\/td>\n | Adjusted Trial Balance<\/td>\n<\/tr>\n |
| Cash<\/td>\n | $70,000<\/td>\n | <\/td>\n | $70,000<\/td>\n<\/tr>\n |
| Accounts Receivable<\/td>\n | 170,000<\/td>\n | <\/td>\n | 170,000<\/td>\n<\/tr>\n |
| Inventory<\/td>\n | 310,000<\/td>\n | 20,000<\/td>\n | 330,000<\/td>\n<\/tr>\n |
| Fixed Assets (Net)<\/td>\n | 200,000<\/td>\n | <\/td>\n | 200,000<\/td>\n<\/tr>\n |
| Accounts Payable<\/td>\n | (80,000)<\/td>\n | (15,000)<\/td>\n | (95,000)<\/td>\n<\/tr>\n |
| Accrued Liabilities<\/td>\n | (60,000)<\/td>\n | <\/td>\n | (60,000)<\/td>\n<\/tr>\n |
| Notes Payable<\/td>\n | (430,000)<\/td>\n | (5,000)<\/td>\n | (435,000)<\/td>\n<\/tr>\n |
| Equity<\/td>\n | (330,000)<\/td>\n | <\/td>\n | (330,000)<\/td>\n<\/tr>\n |
| Revenue<\/td>\n | (410,000)<\/td>\n | (10,000)<\/td>\n | (420,000)<\/td>\n<\/tr>\n |
| Cost of Goods Sold<\/td>\n | 280,000<\/td>\n | 3,000<\/td>\n | 283,000<\/td>\n<\/tr>\n |
| Salaries<\/td>\n | 210,000<\/td>\n | <\/td>\n | 210,000<\/td>\n<\/tr>\n |
| Payroll Taxes<\/td>\n | 30,000<\/td>\n | 7,000<\/td>\n | 37,000<\/td>\n<\/tr>\n |
| Rent<\/td>\n | 20,000<\/td>\n | <\/td>\n | 20,000<\/td>\n<\/tr>\n |
| Other Expenses<\/td>\n | 20,000<\/td>\n | <\/td>\n | 20,000<\/td>\n<\/tr>\n |
| Total<\/td>\n | $0<\/td>\n | $0<\/td>\n | $0<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nThe Difference Between a Trial Balance and a General Ledger<\/h2>\nThe primary difference between a trial balance and a general ledger is the amount of detail provided in the report. In a trial balance, only the ending balance of each account is recorded. A general ledger, on the other hand, records each individual transaction that leads to the ending balance.<\/p>\n Because of the level of detail included in general ledgers, they are useful for identifying and rectifying errors that lead to discrepancies on a trial balance.<\/p>\n Conclusion<\/h2>\nA trial balance is a useful tool for checking the mathematical accuracy of bookkeeping records. It combines all of a company\u2019s ledgers into simple credit and debit columns. The sums of the two columns should match. Now you should know what the meaning of a trial balance is in accounting. Now when you find an accountant <\/a>that works for you, you should be able to have a much more knowledgeable conversation about your needs.<\/p>\n While a trial balance cannot identify every possible bookkeeping mistake, it does help notify an accounting team if there is a mistake in their calculations. With this knowledge, accountants can then track down the discrepancy with the use of the much more detailed general ledgers, which record the individual transactions that add up to the final sums that appear on the trial balance.<\/p>\n","protected":false},"excerpt":{"rendered":" Every company and organization must periodically check its bookkeeping to ensure that the math is correct. A trial balance is one avenue of ascertaining that mathematical accuracy. A trial balance is a worksheet that assembles all of a company\u2019s ledgers into two columns: debit and credit. The totals of each column should be equal. Companies …<\/p>\n |