Trial Balance

What Is a Trial Balance?

A trial balance is a report that lists the balances of every account in a company's general ledger at a specific date, with each balance shown as either a debit or a credit. It is a bookkeeping check. Under double-entry bookkeeping, every transaction records equal debits and credits, so the total of all debit balances should equal the total of all credit balances. When the two totals match, the books are in balance, which suggests the entries were recorded consistently.

How It Works

Accountants usually prepare a trial balance at the end of an accounting period. Each account, such as cash, accounts receivable, accounts payable, revenue, or expenses, appears on its own line. Asset and expense accounts normally carry debit balances, while liability, equity, and revenue accounts normally carry credit balances. The columns are totaled and compared.

Companies often prepare an unadjusted trial balance before year-end adjustments, such as accruals and depreciation, and an adjusted trial balance afterward. The adjusted version is the direct source for building the income statement and balance sheet.

Limitations

A balanced trial balance does not prove the books are free of errors. Some mistakes leave the totals equal, such as an amount posted to the wrong account, a transaction left out entirely, or two offsetting errors. The check catches only errors that throw the totals out of balance.

Why It Matters to Investors

Individual investors rarely see a company's trial balance, since it is an internal working document. It is, however, the foundation for the financial statements that companies publish in their filings. Knowing that those statements are built from balanced ledger accounts helps explain why auditors often test the underlying entries when reviewing a company's financial reports.