Trial balance

Definition

A trial balance is a financial statement that lists all the general ledger accounts and their respective debit or credit balances at a specific point in time. It helps ensure that total debits equal total credits, verifying the arithmetic accuracy of the ledger.

5 Must Know Facts For Your Next Test

1. The trial balance is prepared before adjusting entries are made.
2. It consists of three columns: account names, debit balances, and credit balances.
3. If debits do not equal credits, it indicates an error in the ledger that must be corrected.
4. The trial balance does not detect every type of error, such as omitted transactions or double posting.
5. Preparing a trial balance is an essential step before creating financial statements.

Review Questions

• What are the main purposes of preparing a trial balance?
• Why might a trial balance still balance even if there are errors in the ledger?
• What are the steps to take if you find that your trial balance does not balance?

Related terms

GeneralLedger: The complete record of all financial transactions over the life of a company.

AdjustingEntries: Journal entries made at the end of an accounting period to update certain accounts before preparing financial statements.

FinancialStatements: Formal records of the financial activities and position of a business, person, or other entity.