Trial balance definition

A trial balance is a financial report that helps you check the accuracy of your bookkeeping. 

It lists every account in your general ledger along with their balances, split into two columns: debits and credits. 

Its purpose is to confirm these totals match, showing your records follow double-entry accounting.

You’ll typically prepare a trial balance at the end of a reporting period to spot errors, like unbalanced entries or posting mistakes, before creating important financial statements such as your income statement or balance sheet.

The name says it all – it’s a “trial” to check everything adds up. 

It’s also essential if you’re preparing for an audit, as it helps catch basic errors in your ledger before any deeper analysis.

In this article we’ll cover:

Is a trial balance different from a balance sheet?

A trial balance and a balance sheet, serve very different purposes in accounting:

A trial balance is a working report that lists all your ledger accounts and their current balances to check your bookkeeping’s accuracy. 

It’s an internal document, that makes sure total debits match total credits, and flags issues before you finalize financial statements.

A balance sheet is a formal overview of your business’s financial position. 

It breaks down assets, liabilities, and equity into a clear snapshot of what your business owns, owes, and retains. 

This statement is often shared with external stakeholders like investors or lenders.

In short, the trial balance verifies your records are correct, while the balance sheet shows your financial standing to others.

What goes on a trial balance sheet?

A typical trial balance sheet is a simple report with a three-column layout:

1. Account names: a list of all the accounts from your chart of accounts appears in the first column on the left. You only need to include accounts that have been used during the reporting period.
2. Debit balances: the second column shows all debit balances, such as assets (e.g., cash, accounts receivable) and expenses (e.g., rent, utilities).
3. Credit balances: the third column lists credit balances, including liabilities (e.g., accounts payable, loans), equity (e.g., retained earnings), and revenue (e.g., sales income).

The total in the debit column should equal the total in the credit column. If they don’t match, it signals a bookkeeping error you need to fix.

Trial balance example

Here’s a basic example of a trial balance to help you see how it works:

Account name	Debit ($)	Credit ($)
Cash	10,000
Accounts receivable	5,000
Office supplies	1,500
Accounts payable		3,000
Loan payable		5,500
Revenue		8,000
Rent expense	3,000
Utilities expense	1,000
Total	20,500	20,500

In this example, the total debits and credits both equal $20,500, which means the books are balanced. 

Assets and expenses appear in the debit column, while liabilities and revenue go in the credit column. 

If the totals didn’t align, you’d investigate to find and fix the mistake before preparing further financial statements.

The different types of trial balance reports

There are three main types of trial balance reports, each with a unique purpose in the accounting process:

Unadjusted trial balance 

Think of this as the “rough draft” of your financial records. 

It’s prepared right after recording all transactions for the period, showing balances exactly as they are – no adjustments yet.

This is your first chance to confirm that debits and credits align, catching any immediate errors before you move on.

Adjusted trial balance

The adjusted trial balance includes updates like accruals, depreciation, or corrections to earlier entries.

It serves as a polished version, forming the basis for financial statements, such as your income statement and balance sheet.

Post-closing trial balance

The post-closing trial balance wraps everything up. 

Prepared after closing temporary accounts (like revenue and expenses), it features only permanent accounts, such as assets, liabilities, and equity.

This ensures your accounts are balanced and ready to start fresh for the next accounting period.

Benefits of using the trial balance format

The trial balance format offers several practical advantages:

• User-friendly format: with its straightforward layout, it’s easy to compile, review, and understand – even for newcomers in accounting.
• Quick error detection: matching total debits with total credits helps you pinpoint unbalanced entries or missing transactions right away.
• Saves time in audits: it provides an organized snapshot of your accounts, letting you spot math errors upfront.
• Improved financial accuracy: it’s a structured way to ensure your books follow double-entry rules, lowering the risk of inaccuracies.
• Foundation for financial statements:  it’s the springboard for creating essential reports like the income statement and balance sheet.

Limitations of using the trial balance format

While the trial balance is a useful tool, it’s important to understand its limitations:

• Doesn’t catch all errors: a balanced trial balance doesn’t guarantee flawless books. Missing entries, incorrect classifications, or duplicates may slip by.
• No profitability insight: it’s a working document, not a tool for analyzing profits, cash flow, or overall financial health.
• Manual preparation challenges: if you’re not using accounting software, preparing and balancing by hand can be time-consuming and error-prone.
• Limited fraud detection: it only checks math, not the legitimacy of transactions.

Not a substitute for final statements: it’s not shared with stakeholders and doesn’t replace formal financial statements.

Simplify trial balance report with accounting software

Accounting software makes trial balance reporting faster and easier by automating calculations and reducing errors. 

You receive accurate, up-to-date reports that quickly reveal discrepancies and speed up your financial reporting process.

With less manual effort, you save time, maintain accuracy, and can focus on growing your business instead of sifting through numbers. 

Simplify your trial balance process with financial reporting software that works as hard as you do.