Trial balance
A trial balance is a list of all the ledger accounts in a company's books with their debit or credit balances at a point in time. Total debits must equal total credits, providing an arithmetic check before financial statements are prepared.
A trial balance is a working schedule that lists every account in the general ledger — assets, liabilities, equity, income, and expenses — alongside its closing debit or credit balance at a specific date. Because double-entry bookkeeping records every transaction with equal debits and credits, the two columns of a correctly prepared trial balance must total the same amount.
Its main job is as a checkpoint. Accountants extract the trial balance after posting transactions and before preparing the financial statements. If the columns don't balance, something went wrong — a one-sided posting, a transposed figure, or an addition error — and it must be found and corrected, sometimes via a temporary suspense account, before the accounts can proceed.
A balanced trial balance is necessary but not sufficient proof of accuracy. Several error types leave the totals equal: errors of omission (a transaction never recorded), errors of commission (right amount, wrong account of the same type), errors of principle (expense posted as an asset), compensating errors, and errors of original entry (the same wrong amount on both sides). After period-end adjustments — depreciation, accruals, prepayments — an adjusted trial balance feeds directly into the income statement and statement of financial position.
The trial balance is core material on the ACCA Financial Accounting (FA) exam, which tests its preparation, the errors it does and doesn't reveal, and the use of suspense accounts to correct imbalances.
Key takeaways
- A trial balance lists all ledger accounts with their debit or credit balances; total debits must equal total credits.
- It is an arithmetic check performed before preparing financial statements.
- A balanced trial balance does not prove the books are error-free — omission, commission, principle, compensating, and original entry errors all leave it in balance.
- An imbalance is temporarily parked in a suspense account until the error is found and corrected.