What is a Trial Balance in Accounting?

Trial Balance Meaning

A trial balance is a report that lists the balances of all general ledger accounts of a business at a specific point in time.

It includes all accounts that appear in the company’s ledger, and these accounts are split into debit and credit balances.

Due to the concept of double-entry bookkeeping, this practice ensures that every debit entry is matched by a corresponding credit entry, keeping the ledger in balance.

A trial balance includes all accounts from both the income statement and the balance sheet.

Types of Trial Balance

There are three main types of trial balances:

Unadjusted Trial Balance

This is the initial trial balance, prepared before any adjusting entries are made.

It is used to verify if all debits and credits balance and to see if there are any errors that need to be corrected through adjusting entries.

Adjusted Trial Balance

Once adjusting entries (e.g., depreciation, accruals, and deferrals) have been made, an adjusted trial balance is prepared.

This is often the basis for preparing formal financial statements.

Post-Closing Trial Balance

A Post-Closing Trial Balance is a report created after all the temporary accounts from the income statement, like revenue and expenses, have been closed out at the end of an accounting period.

These temporary accounts are reset to zero because they only track activity for that specific period.

The Post-Closing Trial Balance only includes the permanent accounts from the balance sheet, such as assets, liabilities, and equity, which carry their balances over into the next period.

Its purpose is to ensure that these permanent accounts are balanced and accurate before starting fresh for the new period.

The Post-Closing Trial Balance becomes the opening trial balance for the next year.

Trial Balance Format

A trial balance report typically contains:

Account Names: The names of each account, such as Cash, Accounts Receivable, Revenue etc.
Debit Balances: Amounts that are debited in the ledger.
Credit Balances: Amounts that are credited in the ledger.

These components are organised as below, and the totals for the debits and credits should be the same (ie it “balances”).

Account	Debits	Credits
Account 1	£XXXX
Account 2	£XXXX
Account 3		£XXXX
Account 4		£XXXX
Total	£XXXX	£XXXX

How to Prepare a Trial Balance

Preparing a trial balance is a straightforward process involving a few simple steps:

Step 1 – List All Accounts

Create a list of all accounts from the general ledger (both income statement and balance sheet).

Step 2 – Record Account Balances

For each account, record the balance, placing debit balances in the debit column and credit balances in the credit column.

Step 3 – Calculate Column Totals

Add up the totals for each column (debit and credit) to check that they are equal.

Step 4 – Check for Errors

If the totals don’t match, re-check the entries for any errors or omissions.

It is important to note that this is the manual method of creating a trial balance, but most modern accounting software can produce a trial balance at the touch of a button.

Sample Trial Balance Example

To further understand a trial balance, let’s look at a simplified example.

Imagine a company at the end of its accounting period has the following accounts and balances:

Account	Debit (£)	Credit (£)
Cash	5,000
Accounts Receivable	3,000
Supplies	1,000
Equipment	7,000
Accounts Payable		4,000
Owner’s Equity		12,000
Revenue		3,000
Expenses	2,000
Total	18,000	18,000

In this example the debit and credit totals are equal at £18,000, which means the trial balance is balanced.

This balance means that, at least at a high level, the accounts have been recorded correctly.

Trial Balance Importance

The trial balance serves multiple purposes in the accounting process:

Accuracy

By checking that total debits equal total credits, the trial balance helps verify that there are no significant errors in the ledger.

Financial Statements

The trial balance provides a summary of all accounts and their balances, which makes it easier to prepare financial statements like the balance sheet and income statement.

Identifies Errors

Although it doesn’t catch all types of errors, a trial balance can help identify many accounting mistakes (see below).

Trial Balance Errors

Despite its usefulness, a balanced trial balance does not guarantee that there are no errors in the accounting records.

Some common types of errors include:

Errors Not Detected by the Trial Balance

Omitted Transaction: If a transaction is completely left out of the ledger, it won’t affect the trial balance totals. For example, if an invoice was received but not posted.
Double Posting: If the same transaction is entered twice, the trial balance will still balance.
Compensating Errors: Two errors of equal value that offset each other may still allow the trial balance to balance.
Misclassification Errors: Recording a debit entry in the wrong account (e.g., debiting Office Supplies instead of Equipment) doesn’t affect the trial balance.

Errors Detected by the Trial Balance

Single-Entry Error: Entering a debit or credit without a corresponding entry on the opposite side will result in an imbalance.
Transposition Error: Swapping digits, such as recording £320 as £230, will lead to discrepancies in the trial balance.