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Trial Balance

Author: Sophia

what's covered

This lesson will cover the trial balance, focusing on what it is, how it is used in the accounting process, and its two types. Specifically, this lesson will cover:

1. Trial Balance
2. Unadjusted Trial Balance
- 2a. Example
- 2b. Categories

1. Trial Balance

The trial balance is a list of the debit and credit balances of all the general ledger accounts at a given time.

The trial balance is used as a summary or a checkpoint that all of the account totals--all of the debits and credits--equal.

The trial balance is also used to identify any errors or inconsistencies in journalizing and posting. Did you make any errors? Did you miss anything through the journalizing and posting process? Do your debits not equal your credits?

The trial balance is also used to identify any balances that seem incorrect.

EXAMPLE

Suppose you have an understanding of the natural balances of your different types of accounts, and when looking at your trial balance, you notice that those accounts aren't fitting with your understanding of their natural balance. This might mean you need to dive deeper into that specific account and identify any potential issues.

So, who uses the trial balance? Well, the trial balance is used exclusively by internal users; it is not provided to external users or for external reporting purposes.

There are two types of trial balances:

Unadjusted trial balance, which is essentially the working document. This is used by the accountant for analysis and adjustments, to ensure that debits equal credits, and to identify any accounts might contain inconsistencies. Therefore, the unadjusted balance helps to identify completeness.
Adjusted trial balance, which is used to prepare financial statements and contains those corrections for errors or mistakes.

term to know

Trial Balance

A list of the debit and credit balances of all of the general ledger accounts at a given time.

2. Unadjusted Trial Balance

2a. Example

Let's look at an unadjusted trial balance worksheet example, below. Any trial balance worksheet starts with a list of all of the general ledger accounts, listed on the left side. Along with listing those general ledger accounts, the balance in each of those accounts is reflected, indicating whether it is a debit balance or a credit balance.

Table of a trial balance that is divided into three main columns: Accounts, Debit, and Credit. The Accounts column lists various account types such as Cash, Accounts Receivable, Supplies, and others. The Dr. and Cr. columns display corresponding monetary values. The total debit amount is 302,000, and the credit amount is also 302,000, indicating a balanced trial balance. — View this spreadsheet in Google Sheets

big idea

The important thing to note is that the debits must always equal the credits. As you can see above, there is a total of $302,000 in debits and $302,000 in credits. This is what we use the trial balance for: to make sure that our accounts balance and nothing seems out of the ordinary.

2b. Categories

Next, we will examine the different account categories:

Trial Balance Category	Description	Examples
Assets	Listed from most liquid (cash) to least liquid (in this case, buildings). This refers to how quickly an asset can be converted to cash. The natural balance of these asset accounts is a debit balance.	Cash, Accounts Receivable, Supplies, Prepaid Insurance, Buildings, and Accumulated Depreciation - Buildings
Liabilities	Listed in their correct order, from short-term to long-term. Liabilities have a natural credit balance, so you can see the credits reflected in the liabilities.	Accounts Payable and Notes Payable
Equity	Has a natural balance of credit, as is the case with the common stock and retained earnings. As you may recall, owner draws refers to when the owner pulls cash out of a business, so this is going to be a debit to the equity.	Common Stock, Retained Earnings 1/1/24, and Owner Drawings
Revenue	Has a natural credit balance	Sales
Expense	Has a natural debit balance.	Salaries Expense, Advertising Expense, and Interest Expense

summary

Today we learned about the trial balance in detail, as an internal summary and analysis tool that can help to identify any inconsistencies or balances that seem incorrect, and verify that total debits and credits are equal. We also walked through a comprehensive example of an unadjusted trial balance, a list of the debit and credit balances of all the general ledger accounts at any given time.

Source: THIS TUTORIAL WAS AUTHORED BY EVAN MCLAUGHLIN FOR SOPHIA LEARNING. PLEASE SEE OUR TERMS OF USE.

Terms to Know

Trial Balance: A list of the debit and credit balances of all of the general ledger accounts at a given time.