How does a trial balance work?
A trial balance compiles all the balances from your company’s ledger accounts for a reporting period, as well as captures all financial transactions and makes sure your total debits and credits balance.
Trial balances are fundamental to double-entry bookkeeping because they serve as an exercise in catching any mathematical errors in your accounting records.
Bear in mind that a trial balance is an internal document, not a financial statement for use outside the organisation. It’s a checkpoint to confirm the mathematical accuracy of your company’s transactions before finalising official financial statements.
Bottom line: the trial balance is a financial health check. Accountants use it as an internal audit tool to summarise all business accounts in the one place.
What is included in a trial balance?
A trial balance lists several components. Your general ledger accounts — including nominal ledger accounts — appear in the far left column, each listed by account number.
Accounts with debit balances, like accounts receivable, are listed in the debit column on the left. The debit column comes before the credit column, with total debits below.
Accounts with credit balances, such as accounts payable, are listed in the credit column on the right. Your credit balances sit at the bottom, much like debit balances. Below all the accounts, you have the totals of the debit and credit balances.
Trial balance format and example
Below is an example of a trial balance showing debit entries and credit entries in the standard trial balance format:
| Account name | Debit | Credit |
|---|---|---|
| Cash | $15,500 | |
| Accounts receivable | $12,678 | |
| Equipment | $50,000 | |
| Accumulated depreciation | $8,800 | |
| Accounts payable | $16,378 | |
| Capital | $35,000 | |
| Service revenue | $42,000 | |
| Rent expense | $11,000 | |
| Salaries expense | $13,000 | |
| Total | $102,178 | $102,178 |
How do you prepare a trial balance?
List all your general ledger account balances for the accounting period, then create two columns: one for debits and one for credits.
Enter each account’s final balance into the correct column. Assets and expenses go in the debit column. Liabilities, equity and revenue go in the credit column.
Add up all the numbers in the debit column, then do the same for the credit column. Check that the two totals are equal. If total debits equal total credits, your books are balanced.
What are the three types of trial balance?
There are three types of trial balance, each with a different purpose:
1. Unadjusted trial balance
The unadjusted trial balance captures initial ledger data before any corrections are made. It is effective for a quick spot-check of day-to-day transactions, or as a starting point to analyse accounts.
2. Adjusted trial balance
The adjusted trial balance is prepared after adjusting journal entries are made. It summarises the final balances in all accounts and is used to create accurate financial statements and financial reports.
3. Post closing trial balance
The post closing trial balance is prepared after closing entries have been completed. It ensures accounts are ready for the next accounting period and acts as the starting trial balance for the next financial year.
What errors can a trial balance detect?
If the total debits don’t equal the total credits, an error has occurred in your journal entries. Some of the more common accounting errors a trial balance catches will include:
- Transcription errors: Amounts mistyped, such as entering $500 as $5,000.
- Transposition errors: Digits swapped, such as writing $2,340 as $2,430.
- Reversal errors: The debit and credit sides of an entry accidentally swapped.
- Single-sided entries: A debit entered without its corresponding credit.
What errors can a trial balance not detect?
While a balanced trial balance proves debits equal credits, it doesn’t guarantee your records are error-free. It cannot detect problems outside of figures and numbers.
A balanced trial balance cannot detect missing transactions omitted from the books entirely. It cannot spot transactions recorded in the wrong account — like an expense recorded as an asset.
It also cannot catch errors where the same incorrect amount was entered as both a debit and a credit amount. Misclassification mistakes like these still leave the two columns balanced.
To correct these, double-check your work and verify source data before transferring it. Using accounting software helps prevent mistyped amounts and omitted transactions.
Trial balance vs balance sheet: What are the differences?
A trial balance lists all account balances from the general ledger to check for errors. A balance sheet shows a business’s assets, liabilities, and equity, giving a full picture of its financial position.
A trial balance is an internal document used to ensure debits equal credits. A balance sheet is a formal legal statement shared externally with lenders, investors, and regulators.
A trial balance is less formal and can be prepared as often as needed. A balance sheet is prepared annually. The key difference is scope: a trial balance lists the closing balances of every account, while a balance sheet groups several accounts into one figure.
The trial balance is the first step in preparing financial statements, such as monthly management reports, a profit and loss account or an audit. It gives auditors and tax professionals a clear, balanced record of your financial standing.
