What is a Trial Balance?

A trial balance is a financial document used to assess the accuracy of a company’s accounting entries. It is a summary of all of the account balances within a company’s general ledger, and it is typically prepared prior to an external audit or the completion of the annual financial statements. It is an essential document for double-entry bookkeeping, allowing a business to determine if its books are balanced or if any errors exist that need to be corrected.

Purpose of a Trial Balance

The purpose of a trial balance is to check the arithmetic accuracy of all debits and credits in the general ledger. It is an internal financial document to a business and it is the first step in preparing a company’s external financial statements. Preparing a trial balance, which should reconcile the total debits to the total credits, is a key control mechanism to ensure the accuracy of financial information as it is the last step before external financial statements are prepared.

Components of a Trial Balance

A trial balance consists of account titles, account balances and related sub-totals. The account titles are taken from the company’s general ledger and each account balance should agree with the general ledger’s account balance. The trial balance is organized into two columns, one showing the total of each debit entry and one showing the total of each credit entry. If the trial balance is in balance (debits = credits), there is a good chance that the company’s books are correct. If the debit and credit entries do not balance, double entry bookkeeping errors exist and additional investigation is necessary.