How to Define Trial Balance

Accountants define the trial balance as a tool to expose any error in account balances. It is an important part of the accounting cycle used to make sure all entries in the company accounts are entered correctly and the accounts are in balance. All accounts with debit balances must equal all accounts with credit balances. Trial balances are constructed at the end of an accounting period before and after adjusting entries are made to the general ledger accounts and again after the closing entries are made. Here's how to define the trial balance.

Difficulty: Moderate

Instructions

1. Construct a trial balance after posting all entries to the company's general ledger accounts and calculating the balance in each account. The account balance is the end result of adding all the debits in the account and subtracting all the credits. The preliminary trial balance is a list of all the accounts and balances on a worksheet before any adjusting entries have been made.

2. Set up the worksheet by labeling the first column "Account" and listing all the names and numbers of the accounts in that column. Label the second column "Debits" and the third column "Credits." Post the balance of each account with a debit (positive) balance in column 2 next to the name and number of the account. Post the balance of each account with a credit (negative) balance in column 3 next to the name and number of those accounts. Add all the balances in the debit column together and write the total at the bottom of the column. Do the same for the credit column and write that total at the bottom of the column.

3. Compare the debit column total with the credit column total. They should be equal. If they are, the trial balance is in balance. If the totals are not equal, there is an error. To locate the error, first check the addition of each column. If the columns are totaled correctly, check to see that each account total has been posted to the correct column. That is, make sure no debit balance has been incorrectly posted to the credit column and no credit balance has been incorrectly posted to the debit column. If all accounts are properly posted, go back to each account and check for errors in posting each debit and credit in the account and errors in totaling each account balance. When all the errors have been corrected in individual accounts and the corrections are made to the worksheet, the trial balance will be in balance.

Tips & Warnings

• Constructing a trial balance will find any account that is out of balance, but it's still possible to have errors in the general ledger even if the account totals are in balance. For example, the trial balance will not uncover an error where balanced entries are made to the wrong accounts, such as a misclassified expense.