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What is a Trial Balance in Accounting? A Trial Balance is a report that lists the balances of general ledger accounts of a company at a certain point in time.
It includes Assets, Liabilities, Equity, Revenues, Expenses, Gains, and Losses.
What is a Trial Balance and What is it Used For?
A Trial Balance is a list of accounts' Debit and Credit balances in a double-entry ledger at a given date prepared primarily to test their equality. Trial Balance is prepared to check the accuracy of the various transactions that are posted into the ledger accounts.
It is certainly one of the important accounting tools as it reveals the final position of all accounts. It is used in preparing Financial Statements like Income Statement, Balance Sheet, and Cash Flow Statement of the business.
Why is it Called Trial Balance?
“Trial Balance” comes from trialling the balances, which is to prove that the value of all the debit value balances equals the total of all the credit value balances. It ensures accurate reporting of the nominal ledgers for use in financial reporting of business performance.
If the total of the debit column does not equal the total value of the credit column then there would be an error in the nominal ledger accounts. The error must be found before a Profit and Loss Statement and Balance Sheet are prepared.
What are the 3 Trial Balances?
There are three types of Trial Balances as below:-
- Unadjusted Trial Balance
- Adjusted Trial Balance
- Post-Closing Trial Balance
Unadjusted Trial Balance
Let’s start with the first type of Trial Balance which is the Unadjusted Trial Balance.
It is prepared before adjusting journal entries. It reflects all the activity recorded from day-to-day transactions and is used to analyze accounts when preparing to adjust entries.
For example, if you know that the remaining balance in prepaid insurance should be $100, you can look at the unadjusted Trial Balance to see how much is currently in the account.
Adjusted Trial Balance
The second type of Trial Balance is called The Adjusted Trial Balance. It is completed after the adjusting entries are completed. It has the finalized balances in all accounts and is used to prepare the Financial Statements.
Post-Closing Trial Balance
The third type of Trial Balance is called Post-Closing Trial Balance, it shows the balances after the closing entries have been completed. It will be starting Trial Balance for the next year.
Now, the final Trial Balance will be helpful to prepare the following financial statements:
Income Statement
Balance Sheet
Cash Flow Statement
What is Trial Balance Example?
See below the Trial Balance example imported to Google Sheets automatically with LiveFlow:
Use LiveFlow to sync Trial Balance and other Financial Statements from QuickBooks into Google Sheets in real-time. Download LiveFlow from Google Workspace Marketplace or QuickBooks App Store to track your performance automatically.
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