What Does Trial Balance Mean?
Like a balance sheet, it shows the snapshot of the accounting records on a specific date. A trial balance usually consists of three columns with the account names listed in the first column and the account balances shown as debits and credits in separate columns. The total debits and credits are then summed at the bottom of the report.
Since double entry accounting requires that the debits and credits balance, the trial balance debits must always equal the credits. This is a good double check when you are preparing a trial balance. If your debits don’t equal your credits, you probably don’t have all of the accounts listed or there is an error in one of the balances.
There are a few good ways to quickly check for errors. You can check to make sure the balances match the t-accounts. If all of the balances are listed correctly, you can check to make sure the posting and journalizing process what done properly. One of these steps should help you find your error.
Trial balances are usually prepared at the end of an accounting cycle as a step toward preparing financial statements. At the end of a period, all of the t-account balances are gathered and listed in a report format. This is called an unadjusted trial balance.
Once the year-end adjusting journal entries are made to record expenses like depreciation and prepaid rent, it is considered an adjusted trial balance. The adjusted trial balance can be used to prepare the financial statements for the period.