Basic Accounting: How to Prepare a Trial Balance & Ledger
Double-entry accounting is the basis for most business bookkeeping and accounting in the United States. Each transaction requires an entry in both of two separate accounts---a debit for one and a credit for the other. This double-entry system allows for automatic error checking when used with a trial balance. The trial balance totals the values of all accounts in the ledger and checks for equality between all of the debits and credits. If the debits and credits are equal, the books are presumed to be correct and the bookkeeper may create the financial statements.
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Instructions
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Complete the entry of all transactions in the journal for the business. This is typically part of the month-end or period-ending process. Take care of any backlog in transactions. Transfer all journal entries to the general ledger for preparation.
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List all of the accounts in order on a two-column pad, or use a spreadsheet program. Label the left column as debits and the right column as credits. Enter the ending balance from the ledger for each account in the correct column as a debit or credit. Show the first entry on the trial balance with a dollar sign in front of it. Show all other entries as plain numbers.
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Total the value of all of the debits, using a calculator or the sum function in your spreadsheet program. Show the total at the bottom of the left column under a single line. Place a double line, or double rule, under the total, and a dollar sign to the left of the total. Repeat the process for the credit column.
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Compare the total of the debits and credits. If they are equal your trial balance is completed and you may presume the books to be correct.
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Review the trial balance if your debits and credits are not equal. Subtract the smaller number from the larger number. If it is an even number, look for an account with a value of half of that difference that is incorrectly classified. For example, if the difference is $200, look for an account with a $100 balance that is listed as a debit instead of a credit. If the difference is divisible by nine evenly, look for a transposition of digits.
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Tips & Warnings
When using the dividing by nine method, note how many digits are in the answer when you divide. For example, the number 300 has three digits, so if the difference divided by nine is 300 it means the transposition error begins three digits from the right, in the hundreds column. Also, the value of the left most digit, 3 in this case, always represents the difference between the transposed digits.
A trial balance will not show every error possible. If the same incorrect entry was made on both parts of the transaction, the debits and credits will still balance. A transaction may also have not been entered into the journal at all, or the debit and credit entry could have been switched between accounts.
