How to prepare a trial balance step by step

A trial balance is a list of every account balance in the general ledger on one date. The general ledger is the set of accounts for assets, liabilities, capital, income and expenses.

The list has two money columns. A debit balance goes in the debit column. A credit balance goes in the credit column.

It is a list, not an account. Nothing is posted to it, and it is not part of the double entry. It is a check on the double entry.

Every transaction was posted as a debit and a credit of the same amount. So if the bookkeeping is right, the two columns add up to the same total. The trial balance is then said to agree.

Prepare a trial balance at the end of a period, after every entry for the period has been posted.

1. Balance every account in the general ledger. Add up each side and take the smaller total from the bigger one.
2. Write a heading: the name of the business, the words trial balance, and the date.
3. List every account that has a balance, one line for each. An account with no balance is left off.
4. Write each balance in the column for its side. A debit balance goes in the debit column and a credit balance goes in the credit column.
5. Add up the debit column.
6. Add up the credit column.
7. Compare the two totals. If they are the same, the trial balance agrees.

The customers' own accounts in the sales ledger are not listed one by one. The general ledger holds one total for them, Trade receivables, and that is the line on the trial balance. Trade payables works in the same way for suppliers.

The column follows the balance, not the name of the account. If the bank account is overdrawn, Bank has a credit balance and goes in the credit column.

Drawings, which is what the owner takes out of the business, is a debit balance. It goes in the debit column.

Linden Candles makes candles and sells them to gift shops. At 30 June its general ledger has ten accounts with a balance.

The six debit balances add up to £17,080.00. The four credit balances add up to £17,080.00. The two totals are the same, so the trial balance agrees.

Each balance is in the column for its kind. The bank loan and the £870.00 owed to suppliers are liabilities, so they are credits. Purchases, rent and wages are expenses, so they are debits.

An agreed trial balance proves one thing: total debits equal total credits.

It does not prove the books are right. Six kinds of error leave the two totals equal, so the trial balance cannot show them.

Omission

A transaction left out of the books completely.

Commission

The right amount on the right side, in the wrong account of the same kind, such as another customer's account.

Principle

An entry in the wrong kind of account, such as an asset recorded as an expense.

Original entry

A wrong figure written where the transaction was first recorded, so the debit and the credit are both wrong by the same amount.

Reversal of entries

The right accounts and the right amount, with the debit and the credit swapped.

Compensating errors

Two separate mistakes that happen to cancel each other.

It does show an error that makes the totals differ: an entry with only one side posted, two sides posted with different amounts, an account added up wrongly, or a balance left off the list.

• Putting a balance in the wrong column. The totals are then out by twice that balance: one column is too high by it and the other is too low by it.
• Listing the total of one side of an account. The trial balance takes the balance, which is the difference between the two sides.
• Leaving an account off the list. Its column is short by the whole balance.
• Copying a figure wrongly. Check each figure against the ledger before adding up.
• Listing each customer's account as well as Trade receivables. That counts the same money twice.
• Treating an agreed trial balance as proof that the books are right. It proves only that the debits equal the credits.

• The two totals are the same figure, to the penny.
• Every account in the general ledger that has a balance is on the list, once.
• Each figure is the same as the balance in the ledger.
• Each balance is in the column for its side. Assets and expenses are debits. Liabilities, capital and income are credits.
• The heading shows the date the balances were taken.

If the totals differ, do not change a figure to make them agree. There is an error to find, and the size of the difference says where to look first.