The first step toward interpreting the financial results of your business is preparing a trial balance report. Basically, a trial balance is a worksheet prepared manually or spit out by your computer accounting system that lists all the accounts in your General Ledger at the end of an accounting period (whether that’s at the end of a month, the end of a quarter, or the end of a year).
If you’ve been entering transactions manually, you create a trial balance by listing all the accounts with their ending debit or credit balances. Then, you total the debit and credit columns. If the totals at the bottom of the two columns are the same, the trial is a success, and your books are in balance.
Few bookkeepers get their books to balance on the first try. And in some cases, the books balance, but errors still exist.
The four basic steps to developing a trial balance are:
Prepare a worksheet with three columns.
One column is for account titles, another is for debits, and the other is for credits.
Fill in all the account titles and record their balances in the appropriate debit or credit columns.
Total the debit and credit columns.
Compare the column totals.
The following figure shows a sample trial balance for a company. Note that the debit column and the credit column both equal $57,850, making this a successful trial balance.
A successful trial balance is no guarantee that your books are totally free of errors; it just means that all your transactions have been entered in balance. You still may have errors in the books related to how you entered your transactions, including:
You forgot to put a transaction in a journal or in the General Ledger.
You forgot to post a journal entry to the General Ledger.
You posted a journal entry twice in either the General Ledger or in the journal itself.
You posted the wrong amount.
You posted a transaction to the wrong account.
If any errors listed above slip through the cracks, there’s a good chance that someone will notice the discrepancy when the financial reports are prepared. Even with these potentially lurking errors, the trial balance is a useful tool and the essential first step in developing your financial reports.
