Preparing a trial balance
In double entry bookkeeping, a trial balance is a worksheet that lists all of your general ledger accounts and their balances at a given time. Typically, trial balances are prepared at the end of an accounting period. Accounts are listed in the order they appear in the ledger, as always debits are listed on the left and credits are on the right.
There are three trial balances that need to be prepared. The first trial balance that needs to be made is a preliminary general ledger trial balance. This trial balance needs to be done before working on adjusting entries. Once the preliminary trial balance is finished, you can make adjusting entries. An adjusted trial balance can be done once the entries are adjusted and posted to the general ledger. The last step is a post-closing trial balance. This trial balance only contains balance sheet accounts which help ensure that your books are balanced for the beginning of a new accounting period.
Why is a trial balance important? The trial balance helps to spot errors in the accounting process before moving on to the next step. Preparing trial balances help call accounting errors and irregularities to light.
But what do you do if the trial balance that just won’t balance? After finding out the difference between the two columns, several steps can help:
- If the error is $1, $10, $100, and so on, simply re-add the trial balances columns and recalculate the account balances.
- If you can divide the error by 2, look over the trial balance to look for a balance that’s equal to half of the error that has been entered in the wrong column.
- If you can divide the error by 9, look for the account balances on the trial balance to see if there was a transposition error. An example of a $9 error would be listing $12 ad $21.
- If you can’t divide the error by 2 or 9, look over your ledgers for an account balance that matches the error number to see if an account balance with that same number has been omitted from the trial balance and scan the journal to see if a posting of the same amount was left out.
A trial balance won’t guarantee that your records will be error-free and even if the balances match, it doesn’t mean that every transaction has been accurately recorded.
Creating trial balances help keep your business on track but starting the new accounting cycle balanced.