Information Sheet 1.1.

7: Prepare Trial Balance

Learning outcomes:
1. List account titles
2. Transfer balances from the ledger
3. Summarize trial balance

Learning Objectives:
A. Explain the purpose of trial balance
B. Identify essentials parts of a trial balance
C. Prepare a trial balance

Trial Balance

This is prepared after all transactions for the accounting period have been posted in the ledger.

A trial balance is a two-column schedule listing all the accounts and their trials balance in the
order in which they appear in the ledger for the purpose of proving the equality of the debits
and credits in the accounting records

A trial balance is just a worksheet that bookkeeper's and accountants prepare from the General
Ledger to check that the books (General Ledger) are in balance (Debit Account Balances = Credit
Account Balances).

Steps in Preparing Trial Balance

1. Prepare the heading. Name of the company name of the schedule, date it is
prepared.
2. List the account titles from the ledger in the order in which they appear in the
general ledger.
3. Record the debit and or credit in the debit and credit columns of the trials balance.
4. Total the debit and credit columns to prove equality.

ABC Landscaping Services

TRIAL BALANCE
Oct 13, 2009
Account Debit Credit
Asset Accounts
Cash 5080
Accounts Receivable 1600
Inventory-Office Supplies 100
Mowing Equipment 12500
Liability Accounts
Accounts Payable 2060
Note Payable-Bank 10000

Lead Experts Date: Developed Date: Revised Page #

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Information Sheet 1.1.7: Prepare Trial Balance

Equity Accounts
Owner's Capital 7500
Owner's Draws 1100
Revenue Accounts
Mowing Revenue 1205
Expense Accounts
Mulch Expense 160
Advertising Expense 225

Totals 20765 20765

Checking Accuracy of Trial Balance

A trial balance in which debits equals credits is not necessarily error-free. A trial balance may
contain errors but still look correct if:

1. No entry was made for a given transactions.

2. A journal entry was not posted to the general ledger.
3. A journal entry was posted twice.
4. Incorrect amounts were used to record a given transaction.
5. Incorrect amounts were recorded for a given transaction.

Transposition Error Example: P864 is written or posted as P684 or P468.

Slide Error Example: P684.00 is written or posted as P68.40 or P6.84.

Procedure to Correct Errors in Journalizing and Posting:

1. Draw a straight horizontal-line through the error and insert the correct title or amount if the
entry is incorrect or the posting is incorrect.

2. Make a correcting entry and post it to correct wrong entry already posted.

Correcting Entry is an entry made in the general journal to correct an error discovered.

When the trial balance is out of balance (debits do not equal credits), there are several procedures
(four quick tests or five long steps) that one can undertake to locate the source of the discrepancy.
One must look either to the general journal, the ledger or the trial balance in order to determine
the reason for the problem.

Lead Experts Date: Developed Date: Revised Page #

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Information Sheet 1.1.7: Prepare Trial Balance

Four quick tests

Calculate the difference between debits and credits on the trial balance. Then proceed with the
following steps:
1. If the difference is a multiple of 10, an addition error is likely the source of the
discrepancy. Recalculate the trial balance columns. Then recalculate the balance of each
ledger account.
2. If the difference is equal to an amount entered in the journal or the ledger, check to see
if that amount has been handled properly.
3. Divide the difference by two. Then search the trial balance, the ledger accounts and the
journal for that figure. If such a figure is located, check to see if a debit amount has been
posted or transferred as a credit amount, or vice-versa.
4. If the difference is a multiple of nine, a transposition error (reversal of two numbers
during transfer) or decimal point error (erroneously adding or removing zero) has likely
occurred. Check transfer of figures from journal to ledger accounts (posting) and
transfer of balances from ledger to trial balance. Pay particular attention to incorrect
amounts, amounts not transferred, amounts transferred twice and amounts transferred
to wrong column.

If quick tests fail to reveal the source of the discrepancy, proceed to five long steps as you work
backwards from trial balance to ledger to journal:

Five long steps

1. Recalculate trial balance debit and credit columns.

2. Check transfer of balances from ledger accounts to trial balance.

3. Recalculate individual ledger balances.

4. Check postings (transfers) from journal to ledger accounts. Watch for incorrect
amounts, amounts not posted, amounts posted twice, and amounts posted to wrong
column.

5. Check to determine whether each individual journal entry balances (debits equal
credits) in the general journal.

Lead Experts Date: Developed Date: Revised Page #

Preparing Trial Balance
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