The trial balance is prepared after all the transactions for the period have been journalized and posted to the General Ledger. Trial Balance only confirms that the total of all debit balances match the total of all credit balances. An example would be an incorrect debit entry being offset by an equal credit entry. Types of accounting errors and their effect on trial balance are more fully discussed in the section on Suspense Accounts. In addition to error detection, the trial balance is prepared to make the necessary adjusting entries to the general ledger. It is prepared again after the adjusting entries are posted to ensure that the total debits and credits are still balanced.

The accounting equation needs to balance, every transaction needs to be balanced, our debits and credits need to be balanced and so on. This check might reveal a basic manual data entry mistake or entries made in the wrong column or account. Depending on your accounting system, you may need to combine multiple expenses and sources of income. For example, your accounts payable account may contain multiple smaller entries, which you’ll need to total before transferring this data to your trial balance. While a trial balance can provide a helpful snapshot of your financial position, it’s not a foolproof method of preventing all possible mistakes. Even if your debit and credit entries add up to zero, that doesn’t mean they are correct.

Example of Trial Balance Sheet

The accounting equation is balanced, as shown on the balance sheet, because total assets equal $29,965 as do the total liabilities and stockholders’ equity. The statement of retained earnings always leads with beginning retained earnings. Beginning retained earnings carry over from the previous period’s ending retained earnings balance.

Such uniformity guarantees that there are no unequal debits and credits that have been incorrectly entered during the double entry recording process. However, a trial balance cannot detect bookkeeping errors that are not simple mathematical mistakes. The trial balance includes balance sheet and income statement accounts. The trial balance is prepared after the subsidiary journals and journal entries have been posted to the general ledger. Trial Balance is a list of closing balances of ledger accounts on a certain date and is the first step towards the preparation of financial statements. It is usually prepared at the end of an accounting period to assist in the drafting of financial statements.

Compare your debit and credit totals

Well, first and foremost, you will not be able to prepare your financial statement, leading to no understanding of your business finances and others. In Completing the Accounting Cycle, we continue our discussion of the accounting cycle, completing the last steps of journalizing and posting closing entries and preparing a post-closing trial balance. The adjustments total of $2,415 balances in the debit and credit columns. Total expenses are subtracted from total revenues to get a net income of $4,665. If total expenses were more than total revenues, Printing Plus would have a net loss rather than a net income.

Internal accountants, on the other hand, tend to look at global trends of each account. For instance, they might notice that accounts receivable increased drastically over the year and look into the details to see why. Unsold products from trial balance example acquisitions made during an accounting period are represented as closing stock. The Trial Balance has already recorded the entire cost of the purchases. The closing stock would be tallied twice in the Trial Balance if it were included.