Learn what a trial balance is, how it is prepared from the general ledger, and why equal debit and credit totals do not necessarily mean the accounts are error-free.
What Is a Trial Balance?
A trial balance is a list of the debit and credit balances of general ledger accounts at a particular date.
Its main purpose is to check whether the total debit balances equal the total credit balances.
Why Is a Trial Balance Important?
- Summarises general ledger balances
- Checks the arithmetic balance of double-entry records
- Helps identify certain posting errors
- Provides a starting point for accounting adjustments
- Supports preparation of financial statements
How to Prepare a Trial Balance
Preparing a trial balance generally involves the following steps:
- Record transactions using double-entry bookkeeping.
- Post the transactions to general ledger accounts.
- Calculate each account’s closing balance.
- List debit balances in the debit column.
- List credit balances in the credit column.
- Add both columns and compare the totals.
Practical Trial Balance Example
Let’s continue the example from our General Ledger lesson.
A new sole trader records four transactions:
- The owner invests £2,000 into the business.
- The business receives £800 for services provided.
- The business pays £300 office rent.
- The business purchases office equipment for £500.
All transactions are paid through the business bank account. Ignore VAT and assume the equipment is capitalised.
Step 1: Identify the Ledger Balances
After posting the transactions, the accounts have these closing balances:
| Account | Debit (£) | Credit (£) |
|---|---|---|
| Bank | 2,000 | – |
| Office Equipment | 500 | – |
| Rent Expense | 300 | – |
| Owner’s Capital | – | 2,000 |
| Service Revenue | – | 800 |
| Total | 2,800 | 2,800 |
Which Accounts Have Debit or Credit Balances?
Different account types normally carry different balance types.
| Account Type | Normal Balance |
|---|---|
| Assets | Debit |
| Expenses | Debit |
| Liabilities | Credit |
| Equity | Credit |
| Income | Credit |
These are normal balances, not absolute rules. Certain accounts, such as accumulated depreciation, are contra accounts and have balances opposite to their related account category.
What Happens if the Trial Balance Does Not Agree?
If total debits and credits differ, the bookkeeper should investigate the underlying records.
Possible causes include:
- A debit or credit entry entered for the wrong amount
- One side of a journal entry missing
- Incorrectly calculated ledger balances
- Errors when transferring balances into the trial balance
Modern accounting software normally enforces balanced double-entry transactions, but users must still review account classifications and underlying data.
Errors a Trial Balance Cannot Detect
A trial balance can agree even when the accounting records contain errors.
1. Error of Omission
A transaction is completely omitted from the records. Neither the debit nor the credit is recorded.
2. Error of Commission
A transaction is posted to the wrong account of the same type. For example, a payment is posted to the wrong customer’s account.
3. Error of Principle
A transaction is recorded using the wrong accounting classification. For example, equipment is incorrectly recorded as a routine expense.
4. Compensating Errors
Two or more errors offset one another, leaving the trial balance totals equal.
5. Complete Reversal of Entries
The correct accounts are used, but the debit and credit entries are reversed.
Trial Balance vs Balance Sheet
| Trial Balance | Balance Sheet |
|---|---|
| Lists general ledger account balances | Reports assets, liabilities and equity |
| Includes income and expense accounts | Does not normally present income and expense accounts individually |
| Used mainly as an accounting working report | Used to report financial position at a date |
Trial Balance in Xero, QuickBooks and Sage
Xero, QuickBooks and Sage generally provide trial balance reporting as part of their accounting and financial reporting features.
Users can review account balances for a selected reporting date or period, depending on the software and available options.
Report layouts and settings vary between platforms.
Test Your Knowledge
A trial balance contains the following balances:
| Account | Debit (£) | Credit (£) |
|---|---|---|
| Bank | 4,000 | – |
| Rent Expense | 600 | – |
| Sales Revenue | – | 1,500 |
| Owner’s Capital | – | ? |
What must the Owner’s Capital credit balance be for the trial balance to agree?
Click to reveal the answer
Total debits: £4,000 + £600 = £4,600.
Existing credits: £1,500.
Required Owner’s Capital credit: £4,600 − £1,500 = £3,100.
Total credits: £1,500 + £3,100 = £4,600.
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