B1: 7.02 The Trial Balance

A trial balance is a list of account balances taken from a General Ledger at the end of an accounting period such as a month or a year.

Creating a trial balance

To create a trial balance an accountant will first ensure that the business’ books and ledgers are written up to the end of the accounting period.

Next, the accountant will record a list of the different ledger account names together with the balance at the end of the period. Please note that if the balance carried down figure in a ledger account is on the debit side the amount will be recorded on the credit side of the trial balance and vice versa.

Note also that if the business uses its Cash Book and/or Petty Cash Book as part of the double-entry bookkeeping system, we will include the cash, bank and petty cash balances from these books in the trial balance.

Illustration

A business’ bookkeeper has made the following list of accounts from its general ledger (note that in practice, most businesses will have several dozen or more different accounts in its general ledger)

The bookkeeper will then go through each of the ledger accounts and transfer the balance from the ledger account into the list. Remember that a balance carried down on the credit side in the ledger account will be recorded on the debit side of the list of balances and vice versa.

As the balance c/d figure at the end of the accounting period is on the credit side of the accountancy fees account it will be recorded on the debit side of the list of balances
As the balance c/d figure at the end of the accounting period is on the credit side of the Bank Control account it will be recorded on the debit side of the list of balances
As the balance c/d figure at the end of the accounting period is on the debit side of the Capital account it will be recorded on the credit side of the list of balances

The bookkeeper will carry on and record all the ledger account balances in the list.

[Note: The values of the business’ assets and expenses should be recorded on the debit side of the trial balance and the values of liabilities, capital and income should be recorded on the credit side. If this is not the case, an error may have been made]

Once all the balances are recorded, the debit and credit columns should be added up with the totals entered as shown below:

Once the list of balances has been totaled it can be described as a Trial Balance. The total of the debits must equal the total of the credits – if it doesn’t then something has gone wrong either in the preparation of the business’ books and ledgers or when the trial balance was prepared.

How trial balances are used

Trial balances are used for two main reasons

  1. To help us check that the books are correct
    • If the total of debits do not equal the total of the credits and we have checked that the trial balance accurately reflects the General Ledger balances we know that errors exist in the General Ledger
    • A trial balance provides an easy way to review the ledger balances quickly and identify any unusual balances for further investigation
  2. To help us prepare a set of accounts
    • A trial balance provides the basic information required to prepare a set of accounts
    • A set of accounts includes a Profit and Loss statement that records the business’ income and expenses as well as a Statement of Financial Position (also known as a Balance Sheet) that records the business’ assets, liabilities and capital

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