Trial Balances
Bookkeeping Ingredients
A Trial Balance is an internal accounting report that lists the closing balances of every account in a company’s general ledger to verify that total debits equal total credits.
Purpose and Function
Mathematical Check: It ensures that the double-entry bookkeeping system has been maintained properly (i.e., every transaction has equal debits and credits).Foundation for Financial Statements: Account balances from the trial balance are directly used to build formal financial statements, such as the income statement and the balance sheet.
Internal Tool Only: Unlike a balance sheet or income statement, a trial balance is an internal worksheet and is not shared with external lenders or investors.
Types of Trial Balances
- Unadjusted Trial Balance: Prepared straight from the general ledger after regular daily transactions are posted, before any year-end adjustments.
- Adjusted Trial Balance: Prepared after adjusting entries (for things like depreciation, accruals, or prepayments) have been posted. This version feeds directly into the final financial statements.
- Post-Closing Trial Balance: Prepared after closing entries are made for temporary accounts, ensuring the books are ready for the new accounting period.
Betty Explains Trial Balances