Trial Balance

After analyzing transactions, recording them in the journal, and posting into the ledger, we enter the fourth
step in the accounting process preparing a trial balance.
A trial balance is a report that shows a list of the balances of the ledger accounts. Its purpose is to test
the equality between total debits and total credits.
It shows a summary of how much Cash, Accounts Receivable, Supplies, etc. the company has after
the posting process.
The account names are listed as arranged in the ledger and the balances are placed either on the debit
or credit column.

Trial Balance Example

To illustrate, here's a trial balance example. Based on the ledger we prepared in theprevious lesson, the
trial balance would look like this:

Gray Electronic Repair Services

Unadjusted Trial Balance
December 31, 2014
Account Title
Cash
Accounts Receivable
Service Supplies
Furniture and Fixtures
Service Equipment
Accounts Payable
Loans Payable
Mr. Gray, Capital
Mr. Gray, Drawing
Service Revenue
Rent Expense
Salaries Expense
Taxes and Licenses
Totals

Debit
$ 7,480.00
3,400.00
1,500.00
3,000.00
16,000.00

Credit

9,000.00
12,000.00
13,200.00

7,000.00
9,550.00
1,500.00
3,500.00
370.00
$ 43,750.00 $ 43,750.00

The purpose of the trial balance is to test the equality between total debits and total credits after the
posting process. This trial balance is called an unadjusted trial balance(since adjustments are not yet
included).

There are two other types of trial balance: the adjusted trial balance which is prepared after adjusting
entries are prepared and posted, and the post-closing trial balance which is prepared after closing entries.
These two are prepared in later steps of the accounting process.

Equal Doesn't Always Mean Correct

When the total debits and total credits are not equal, it is a clear indication that a mistake has been
committed in the journalizing and/or posting process. An amount must have been entered incorrectly;
hence, must be corrected.
However, the trial balance does not guarantee that the records are accurate even if the total debits and
total credits are equal. There are instances when this happens such as:
1. When a transaction was not recorded or not posted (no debit and no credit),
2. When a transaction was recorded or posted twice (total debits and total credits are both overstated by the
same amount),
3. When an account was recorded instead of another account of the same classification; for example,
Supplies was debited instead of Equipment (the total debits would still be correct since they are both
asset accounts).