Loading the player...

What is a 'Trial Balance'

A trial balance is a bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit columns. A company prepares a trial balance periodically, usually at the end of every reporting period. The general purpose of producing a trial balance is to ensure the entries in a company's bookkeeping system are mathematically correct.

BREAKING DOWN 'Trial Balance'

Preparing a trial balance for a company serves to detect any mathematical errors that have occurred in the double-entry accounting system. If the total debits equal the total credits, the trial balance is considered to be balanced, and there should be no mathematical errors in the ledgers. However, this does not mean there are no errors in a company's accounting system. For example, transactions classified improperly or those simply missing from the system could still be material accounting errors that would not be detected by the trial balance procedure.

Ledger Accounts

Companies initially record their business transactions in bookkeeping accounts within the general ledger. Depending on the kinds of business transactions that have occurred, accounts in the ledgers could have been debited or credited during a given accounting period before they are used in a trial balance worksheet. Furthermore, some accounts may have been used to record multiple business transactions. As a result, the ending balance of each ledger account as shown in the trial balance worksheet is the sum of all debits and credits that have been entered to that account based on all related business transactions.

Debits and Credits

At the end of an accounting period, the accounts of asset, expense or loss should each have a debit balance, and the accounts of liability, equity, revenue or gain should each have a credit balance. However, certain accounts of the former type may have been also credited and certain accounts of the latter type may have been also debited during the accounting period when related business transactions reduce their respective accounts' debit and credit balances, an opposite effect on those accounts' ending debit or credit balances. On a trial balance worksheet, all the debit balances form the left column, and all the credit balances form the right column, with the account titles placed to the far left of the two columns.

Undetectable Errors

After all the ledger accounts and their balances are listed on a trial balance worksheet in their standard format, add up all debit balances and credit balances separately to prove the equality between total debits and total credits. Such a uniformity ensures there are no unequal debits and credits that have been incorrectly entered during the double-entry recording process. However, a trial balance cannot detect bookkeeping errors that are not simple mathematical mistakes. If equal debits and credits are entered into the wrong accounts, a transaction is not recorded or offsetting errors are made with a debit and credit at the same time, a trial balance would still show a perfect balance between total debits and credits.

RELATED TERMS
  1. General Ledger

    A company's main accounting records. A general ledger is a complete ...
  2. Debit

    An accounting entry that results in either an increase in assets ...
  3. Double Entry

    The fundamental concept underlying present-day bookkeeping and ...
  4. Ledger Balance

    The balance of a customer account as shown on the bank statement. ...
  5. Account Balance

    1. The amount of money in a financial repository, such as a checking ...
  6. Debit Ticket

    An accounting entry recorded as a debit that acknowledges money ...
Related Articles
  1. Investing

    What's a Trial Balance?

    A trial balance is a worksheet listing the debit or credit balances of all the ledger accounts for an entity. Under accounting theory, the total of all the debits must equal the total of all ...
  2. Investing

    What Does Debit Mean?

    Debit is an accounting term used to refer to the left side of an accounting journal entry. Each debit must be offset by an equal credit entry.
  3. Investing

    Understanding the Accounting Cycle

    An accounting cycle consists of the traditional procedures performed to record business events and transactions in a company’s accounting records.
  4. Investing

    What's a General Ledger?

    As the heart of the double-entry accounting system, the general ledger is the record of a company's entire financial transaction history. The left side of the general ledger is for debits: assets, ...
  5. Investing

    Explaining Double Entry Accounting

    Double entry is an accounting and bookkeeping term describing the method of entering transactions into the accounting records.
  6. Personal Finance

    What is an Account Balance?

    An account balance represents the total amount of money in a financial account at any given moment.
  7. Investing

    How to Make a Closing Entry

    Observe the following procedure for making closing entries.
  8. Investing

    What's a Debit Note?

    A debit note is a document used by a seller to inform a purchaser of a dollar amount owed. As the name indicates, it is a note from the seller that a debit has been made to the purchaser’s account. ...
RELATED FAQS
  1. How do you calculate credits and debits in the general ledger?

    Know the key points when balancing a ledger and why it's essential to understand the relationship between credits and debits ... Read Answer >>
  2. What's the difference between a trial balance and a balance sheet?

    Discover what is included in a trial balance and a balance sheet, and learn about what sets these two accounting reports ... Read Answer >>
  3. What's the difference between a trial balance and an adjusted trial balance?

    See the difference between a trial balance and an adjusted trial balance, and understand the importance of making the appropriate ... Read Answer >>
  4. What is double entry bookkeeping and how does it work in the general ledger?

    Learn about the double entry method of bookkeeping and how it works in the general ledger. Every accounting transaction has ... Read Answer >>
  5. What are some examples of debit notes in business-to-business transactions?

    Review some examples of debit notes in business-to-business transactions and learn why debit notes would be used instead ... Read Answer >>
  6. How is a Limited Liability Company (LLC) taxed?

    Learn how to create grouping schedule codes and subcodes, how this process requires basic bookkeeping skills and why accurate ... Read Answer >>
Hot Definitions
  1. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  2. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  3. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  4. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  6. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
Trading Center