Trial Balance
Testing the Equality between Debits and Credits

After analyzing transactions, recording them in the journal, and posting into the ledger, we enter the fourth step in the accounting process – preparing a trial balance.

A trial balance is a report that shows a list of the balances of the ledger accounts. Its purpose is to test the equality between total debits and total credits.

It shows a summary of how much Cash, Accounts Receivable, Supplies, etc. the company has after the posting process.

The account names are listed as arranged in the ledger and the balances are placed either on the debit or credit column.

Trial Balance Example

To illustrate, here's a trial balance example. Based on the ledger we prepared in the previous lesson, the trial balance would look like this:

Gray Electronic Repair Services
Unadjusted Trial Balance
December 31, 2014
Account Title   Debit   Credit
Cash   $    7,480.00    
Accounts Receivable   3,400.00    
Service Supplies   1,500.00    
Furniture and Fixtures   3,000.00    
Service Equipment   16,000.00    
Accounts Payable       $    9,000.00
Loans Payable       12,000.00
Mr. Gray, Capital       13,200.00
Mr. Gray, Drawing   7,000.00    
Service Revenue       9,550.00
Rent Expense   1,500.00    
Salaries Expense   3,500.00    
Taxes and Licenses   370.00    
Totals   $  43,750.00   $  43,750.00

The purpose of the trial balance is to test the equality between total debits and total credits after the posting process. This trial balance is called an unadjusted trial balance (since adjustments are not yet included).

There are two other types of trial balance: the adjusted trial balance which is prepared after adjusting entries are prepared and posted, and the post-closing trial balance which is prepared after closing entries. These two are prepared in later steps of the accounting process.

Equal Doesn't Always Mean Correct

When the total debits and total credits are not equal, it is a clear indication that a mistake has been committed in the journalizing and/or posting process. An amount must have been entered incorrectly; hence, must be corrected.

However, the trial balance does not guarantee that the records are accurate even if the total debits and total credits are equal. There are instances when this happens such as:

  1. when a transaction was not recorded or not posted (no debit and no credit),
  2. when a transaction was recorded or posted twice (total debits and total credits are both overstated by the same amount),
  3. when an account was recorded instead of another account of the same classification; for example, Supplies was debited instead of Equipment (the total debits would still be correct since they are both asset accounts).
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