Trial balance
A list of every account in the general ledger with its closing balance, used to check that total debits equal total credits.
In short
- It is the starting point for preparing financial statements.
- A balanced trial balance proves the arithmetic, not that the entries are right.
- Accountants review it for unusual balances before closing a period.
A trial balance lists each general ledger account and its balance at a date, in a debit column or a credit column. Because every journal entry balances, the two columns should total the same amount.
What it proves, and what it doesn't
A trial balance that balances shows that debits and credits were recorded equally. It does not show that they were recorded in the right accounts, for the right amounts or in the right period. An invoice posted to the wrong expense account, or a sale left out entirely, would not unbalance it. That is why the trial balance is a starting point for review, not the end of it.
How it is used
- Unadjusted trial balance: run before period-end adjustments, to see where things stand.
- Adjusted trial balance: run after accruals, depreciation and other adjustments, and used to build the financial statements.
- Review: accountants scan for balances that look wrong: a negative bank balance, a credit balance in an expense account, a suspense account that isn't empty, or a large change from last month.
Accounting software produces a trial balance instantly, and it can't be out of balance there. The review, however, remains a human job, and it is one of the most efficient ways to catch errors before reporting.
Worked example
Spotting a problem in a balanced TB
A company's trial balance totals $2,418,650 on both sides. On review, the controller notices a $6,200 credit balance in Office supplies expense, which should never be negative. The cause is a supplier credit note posted to the expense account instead of against the supplier's balance. The TB balanced all along; the review caught it.