Trial Balance

The Trial Balance is a way to audit the books to be sure they are in balance. Before preparing the financial statements it is necessary to be sure that all of the General Ledger accounts are in balance. They should be checked at least once a month. If you wait longer than that, it becomes more difficult to find errors if they are not in balance.

Preparing the Trial Balance is a simple process where you take the total of each of the General Ledger accounts and transfer them to a single form that lists all of the accounts. On this form are two columns to the right of the account names column. There is one column for the debit balance accounts on the left and another for the credit balance accounts on the right.

It is very important to remember which accounts of the General Ledger are debit accounts and which are credit balance accounts.  This requires understanding of debits and credits.

A debit to a debit account increases the balance of that account whereas a credit decreases it. The following are debit accounts:

Cost of Goods Sold (Cost of Sales)

A debit to a credit account decreases the balance of that account whereas a credit increases it. The following are credit accounts:

Income (Sales, Revenue)

When you have finished posting each balance of the individual General Ledger accounts to the correct columns, the next step is to total each of the two columns at the bottom. The two columns must balance (have the same total as each other) before you can proceed with preparing the financial statements and closing out the books for the month. If the two columns do not balance then it is necessary to go over each of your general ledger accounts again to verify they have been totaled correctly and if the figures contained in them for the month are accurate.