The Trial Balance Report: Definition and Purpose

Are you a first-time entrepreneur or a small business owner? We know how difficult your role can be as you juggle everything from workers to clients.

As you begin to scale your business, one important thing to remember is the need to keep your accounting system up-to-date. Using a trial balance report can be a big help to ensure all your entries are mathematically correct.

You’ll need to know what a trial balance means according to accounting principles, including its purpose and correct format.

What is a trial balance?

As an accounting report, a trial balance shows the balances of a company’s ledgers. These ledger balances are put into either the debit or credit column in the trial balance.

Businesses typically make trial balances at the end of each accounting period to run a quick balance on the accounts and pick up any mathematical errors before preparing official financial statements.‍

Trial balance vs. general ledger

The purpose of a trial balance is only to show the ending balance in each account, while a general ledger also shows detailed transactions that comprise the ending balance.

These additional details in a general ledger reveal account activity during a certain accounting period, which makes it easier to conduct research and recognize possible errors in the accounting records.‍

Types of trial balances

A trial balance that is first printed is called the unadjusted trial balance. When issues are discovered, the accounting team corrects any errors and makes adjustments to the report, which is now known as the adjusted trial balance.

The adjusted trial balance is typically kept in the month-end book. Once the accounting period has been closed, the report is called the post-closing trial balance. The final trial balance contains the starting balances for the following period’s accounting activities.

Not sure what this means? Skim this trial balance example to see how adjustments are applied to determine the final trial balance.

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XYZ Corporation
Trial Balance
June 25, 2015

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Unadjusted

The unadjusted trial balance is a list of general ledger account balances at the end of a reporting period before the business makes any adjusting entries to the balances. It’s used as the starting point for analyzing account balances, correcting errors, and making adjusting entries.

If your company creates financial statements on a quarterly basis, your accountant would print an unadjusted trial balance at the end of each quarter to initiate the process of creating financial statements.

In the table above, the unadjusted trial balance is located in the third column (or the first column of numbers).‍

Adjusted

An adjusted trial balance lists ending balances in all accounts after entries have been adjusted for errors. The entries are also modified to bring the financial statements into compliance with a specific accounting framework, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

After all of the adjustments have been made, the adjusted trial balance essentially summarizes listings of all the accounts in the general ledger without displaying any detailed transactions that comprise the ending balances.

The adjusted trial balance isn’t part of the financial statements; instead, it’s an internal report that your accountant can use to ensure the total of all debit balances in all accounts is the same as the total of all credit balances in all accounts. The report can also be used to generate financial statements (specifically, the income statement and balance sheet).

In the table above, the unadjusted balance for all accounts is located in the third column from the left. Corrections and adjustments are noted in the fourth column, and the combined net balance in each account is in the last column.

Post-closing trial balance

A post-closing trial balance lists all the balance sheet accounts containing non-zero balances at the end of the reporting period. This balance is used to verify that the total of all debit entries equals the total of all credit entries, resulting in a net-zero balance.

Since these temporary accounts have already been closed, the post-closing trial balance contains no revenue, expenses, gains, losses, or summary account balances. If any of these accounts appear in the trial balance after the closing process, they’re associated with the next accounting period.

Below is an example of a post-closing trial balance. You’ll notice it includes four main things:

• Account number
• Account name
• Final debit balance
• Final credit balance

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AMC Corporation
Trial Balance
April 15, 2004

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How to prepare a trial balance

Preparing a trial balance is the third step in the accounting process, after recording transactions and posting them in the general ledger.

Follow these steps to prepare a trial balance:

1. Balance each ledger account. First, every ledger account must be balanced. The difference between the total credit entries and the total debits entries of an account is the balance. Examples of ledger accounts include wages, rent, inventory, utilities, and loans.

2. Prepare the trial balance worksheet. Then, prepare a four-column worksheet: two columns for the account number and account name and the corresponding columns for debit and credit balances.

3. Fill out the worksheet. Fill out the account numbers and names and the balance of each account in the appropriate debit or credit column.

4. Total the columns. Sum the debit column and the credit column. Ideally, in an error-free trial balance, these totals should be equal to each other.

5. Close the trial balance. Once you compare the totals and confirm they’re the same, you can close the trial balance. If there’s a difference, try to find and rectify errors with appropriate adjustments.

You may want to use accounting software tools that can make the daily accounting process easier and more accurate. If you want a more robust look at your company’s transactions, consider hiring an independent, expert bookkeeper to handle your accounts and ensure accurate, up-to-date information. ‍

5 of the most common trial balance errors

A trial balance lists all general ledger account totals. Each account should consist of an account number, an account name, and the final debit and credit balance. If the total debits are the same as the total credits, the trial balance is considered balanced and mathematically correct; however, many potential errors that don’t affect the trial balance can go undetected.

Here are some of the most common errors when preparing a trial balance:

• Principle error: This error occurs when an entry is made to the wrong type of account. For example, if an expense is debited to an asset account, a trial balance won’t detect this, yet the totals on the trial balance may still be equal.
• Original entry error: This happens when a transaction on both the debit and credit sides is entered incorrectly. If a purchase is entered as $52 instead of $25 in the debit column and it’s also entered as $52 in the corresponding credit column, for example, the trial balance will still show that the columns are equal.
• Reversal error: This is when the correct amount is entered but is put as a credit instead of debit, or vice versa. If $50 is debited to one account and credited to another (but should have been put in the opposite order), for example, the trial balance will still show an equal balance despite this error.
• Omission error: An error of omission happens when you forget to enter a transaction in the journal entries. If a transaction is entirely omitted or somehow not recorded, there will be no effect on the trial balance.
• Commission error: This occurs when an amount is entered correctly but to  the wrong account. For example, if a payment is matched to the incorrect account, the amount owed will still technically be correct in the trial balance.

FAQs about trial balances

Is a trial balance a financial statement?

The trial balance isn’t a financial statement itself. However, all the information you need to create the three major financial statements—balance sheet, cash flow statement, and income statement—comes directly from the trial balance.

Is a trial balance the same as a balance sheet?

No. A trial balance summarizes only the closing balances of the company’s different accounts, while a balance sheet summarizes the total liabilities, assets, and shareholder’s equity in the company.

Is a trial balance proof of accuracy?

No. Even if the credit and debit accounts match, it doesn’t prove that all transactions have been recorded in the correct accounts.

Prepare your financial reports the right way

A trial balance lists all general ledger account totals. Each account should consist of an account number, an account name, and the final debit and credit balance. If the total debits are the same as the total credits, the trial balance is considered balanced and mathematically correct; however, many potential errors that don’t affect the trial balance can go undetected.

If accounting and finance aren’t your areas of expertise, we recommend using independent bookkeeping services to help with your trial balance sheets and other financial statements. Bookkeepers can also assist you with other financial tasks including payroll processing, budget planning, and more.

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