There are many kinds of records, files, and data that an accountant needs to be able to prepare an accurate report of a company’s financial standing.
Although a trial balance is not a formal statement, it is one of those records that can help confirm the accuracy of all the data at hand.
As mentioned previously, a trial balance is not a formal financial statement. Some professional accountants or companies may opt not to have a trial balance especially when they are using an automated accounting system.
A trial balance is a form of ledger accounts that lists their respective closing debit or credit balances on a certain date. Usually, other financial statements are prepared after the trial balance is ready.
You should know that bookkeeping and recording every single financial transaction your company has is an essential step to making sure that your business is on the right track.
Great bookkeeping demands accuracy and consistency. However, automated systems and humans alike can make errors. Some ways to avoid errors or at least to identify them as early as possible includes:
Your company accountant or your chosen third-party accounting professional needs to prepare a trial balance to determine whether your debits equal credits at any particular point in time.
However, you must keep in mind that this is not the same as determining your total assets or total revenues or total expenses. A trial balance computes all the company debits and all the credits in a summarized form.
Errors may occur due to manipulation of records, carelessness, or simply a human error. Regardless of the reason, you need to find the error to ensure that it does not cause any more problems down the line,
The Trial Balance can help discover errors in:
However, keep in mind that the trial balance is limited. It cannot help your find all the errors in your records. For instance, here are some errors that a trial balance cannot help you identify:
Here is how to prepare a trial balance.
Before you can prepare your trial balance, you must first make sure that all your ledger account is balanced. You can do this by determining the difference between the sum of all the debit entries and the sum of all the credit entries.
You will use these columns to note and record the account number, account name, and the corresponding columns for debit and credit balances.
You need to transfer details like account number and account name along with the account balance in the relevant debit or credit column.
The totals for these two separate columns would be the same in an error-free trial balance.
If there is no issue with your records and the totals for the debit and credit is the same, then you may:
A trial balance is a great way to identify mistakes and errors in your financial records. If your trial balance fails to– well… balance, then something has certainly gone wrong in your bookkeeping records.