Trial Balance Overview, What’s Included, and Examples

preparing a trial balance

This type of error can only be found by going through the trial balance sheet account by account. You can perform an adjusted trial balance once your book is balanced. This type of trial balance contains the final balances in all company accounts, and you can use it to prepare your official financial statements. An unadjusted trial balance is done before adjusting journal entries are completed. You can use this trial balance as a starting point to analyze your accounts before adjusting your journal entries.

preparing a trial balance

Make sure that the accounts listed on your trial balance are the same as on your general ledger. Limitations aside, a trial balance can still be a valuable tool for evaluating your company’s finances, and it can be helpful when you examine your company’s financial statements. One way to find the error is to take the difference between the two totals and divide chart of accounts the difference by two. For example, let’s assume the following is the trial balance for Printing Plus. Furthermore, the assets and liabilities have to be listed in order of liquidity, which refers to how quickly an asset can be converted to cash to pay off liabilities. Finally, if some adjusting entries were entered, it must be reflected on a trial balance.

How Do You Prepare a Trial Balance?

Tax accountants and auditors also use this report to prepare tax returns and begin the audit process. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. Each trial balance will follow the same format as above, but they are used in slightly different circumstances. What do you do if you have tried both methods and neither has worked?

  1. A balance sheet records not only the closing balances of accounts within a company but also the assets, liabilities, and equity of the company.
  2. This ensures that your books are correct and that you can withstand a financial audit.
  3. The total of the debit column and credit column should be the same.
  4. The final total in the debit column must be the same dollar amount that is determined in the final credit column.
  5. For example, if you determine that the final debit balance is $24,000 then the final credit balance in the trial balance must also be $24,000.
  6. Save the document itself, which can be helpful if you need to perform the process again for a longer period.

With accounting software, business owners don’t have to wait for the end of the year to make a trial balance and assess their financial information. Once the errors are located, adjusting entries are posted to the trial balance. Once this is done, the trial balance is considered an adjusted trial balance. Before the errors can be identified and corrected, a temporary suspense account is created to match the trial balance totals temporarily.

Finding discrepancies like this is why you created a trial balance, and discovering the error now can save you time and headaches later on. A trial balance includes all your business accounts that have credits or debits during a given reporting period. It includes the amounts credited or debited to each account, the dates of the reporting period, the account numbers, and the totals for all credits and debits entered during that time. As you can see, the report has a heading that identifies the company, report name, and date that it was created. The accounts are listed on the left with the balances under the debit and credit columns.

Each month, you prepare a trial balance showing your company’s position. After preparing your trial balance this month, you discover that it does not balance. The debit column shows $2,000 more dollars than the credit column. Note that for this step, we are considering our trial balance to be unadjusted. The unadjusted trial balance in this section includes accounts before they have been adjusted.

What Does a Trial Balance Include?

The debits and credits include all business transactions for a company over a certain period, including the sum of such accounts as assets, expenses, liabilities, and revenues. A trial balance is a report that lists the balances of all general ledger accounts of a company at a certain point in time. The accounts reflected on a trial balance are related to all major accounting items, including assets, liabilities, equity, revenues, expenses, gains, and losses. It is primarily used to identify the balance of debits and credits entries from the transactions recorded in the general ledger at a certain point in time. Companies initially record their business transactions in bookkeeping accounts within the general ledger.

Such uniformity guarantees that there are no unequal debits and credits that have been incorrectly entered during the double entry recording process. However, a trial balance cannot detect bookkeeping errors that are not simple mathematical mistakes. Accountants use a trial balance to test the equality of their debits and credits. A trial balance is a listing of the ledger accounts and their debit or credit balances to determine that debits equal credits in the recording process. Preparing and adjusting trial balances aid in the preparation of accurate financial statements. Although you can prepare a trial balance at any time, you would typically prepare a trial balance before preparing the financial statements.