For companies and businesses, accountability of finances and assets is mandatory for the smooth running of all programs. Companies need to record transactions in journal ledgers and in the general ledger, with the trial balance key in the preparation of financial statements like the income statement.
Things we are going to explore here:
- What is a Trial Balance Report?
- Accounting Trial Balance Format
- Trial Balance Items List
- How to Prepare a Trial Balance
- Functions of Trial Balance
- Uses of Trial Balance
- Specimen of Trial Balance
- Rent in Trial Balance
- Conclusion of Trial Balance
- Why is it Important to Prepare a Trial Balance?
- Types of Trial Balance
- Trial Balance Sample
- Prepare Income Statement from Trial Balance
- How to Prepare a Trial Balance from Ledger
- How to Prepare Balance Sheet from Trial Balance
- What Can Make a Trial Balance not Balance?
- Parse Trial Balance Report – Guide
- Let’s Explain the Analysis of Trial Balance
What is a Trial Balance Report?
This is a financial document prepared at the end of every financial year. It shows the debits and credits of a given business for a certain financial period. In a trial balance, amounts on both the debit side and credit side must balance. Unbalanced debit and credit columns simply denote an error in the accounting system of that company or business.
Accounting Trial Balance Format
The trial balance item list shows you what should be included as part of the trial balance worksheet. However, the format of trial balance in accounting generally has four columns that appear in this order:
- account number
- account name (description)
- debit balance
- credit balance
Totals under the debit and credit balances are indicated at the bottom of the worksheet.
Where you record the account balance- whether on either debit or credit side – depends on the type of account. Read the section below to find out where or what balances go to the debit and credit sides.
Trial Balance Items List
A trial balance items list includes general ledger account totals but has to show the following details:
- business name
- Serial No
- Date/accounting period
- Account name
- Debit balances
- Credit balances
If the trial balance has been adjusted, then it must also show the balances before, then adjusting balances, and lastly the new (final) balances.
List of Debit and Credit Items in Trial Balance
In general, all transactions that involve money either fit in the debit balance or credit balance of a trial balance report. Below is a long light that presents debit and credit items in a typical trial balance.
|Debit Balance||Credit Balance|
|Bank charges||Bank loan or overdraft|
|Fixtures and furniture||Sundry creditors|
|Office equipment and tools||Common stock|
|Office vehicles||Apprentice premium|
|Machinery and plant||Bills payables|
|Buildings and land||Un-earned revenues|
|Bills receivables||Interest received|
|Rent paid||Dividend received|
The items under the debit balance and credit constitute a protracted list. As such, more articles can fit into either of the categories. In general, all liabilities are captured under the credit balance section. All other items such as expenses and assets that provide a positive balance appear on the debit section.
How to Prepare a Trial Balance
The preparation of the trial balance can take two forms: using the account totals (Total Method) and net balances (Balance Method).
Close all books of transactions- the ledger account, the cash book, and the bank account- by ensuring the credit and debit entries balance.
Prepare a four-column worksheet with the following titles: account number, account name, debit, and credit.
Add to the debit column amounts from Assets, Expense account, cash account, bank balances, and losses.
In the credit section of the worksheet, fill balances from Liabilities, income accounts, Capital account, and Profits.
When recording balances in a trial balance, the preparer sorts them by account number, making it easy to find details about a particular account.
Functions of Trial Balance
The primary function of a trial balance is to show that the total of all debits is equal to that of credits. It helps businesses to generate accurate financial statements. Businesses prepare the trial balance report at the end of an accounting period.
Uses of Trial Balance
A trial balance has several uses, which include the following.
- It is used to create financial statements.
- The double entry recording system of a trial balance allows for easy identification and rectification of errors.
- It serves as a summary of the financial transactions of a business.
- It helps with the accurate extraction of account balances from ledgers.
- It helps auditors to understand ledgers better.
- Its tallied columns make adjustment of a trial balance easy even after it has been prepared.
Specimen of Trial Balance
A trial balance is primarily composed of a serial number, particulars, debit balance, and credit balance. Therefore, a specimen of trial balance can be highlighted below.
|S/N||Particulars||Debit Balance||Credit Balance|
Rent in Trial Balance
Rent is an item that fits in the credit balance section of a trial balance. It fits with other articles like wages, salaries, and trades payables to name a few. Unlike the items written in the debit balance section, rent belongs to the credit balance section because it is a liability for an enterprise.
Conclusion of Trial Balance
Every financial document has a logical conclusion. In particular, the conclusion of a trial balance shows an account balance summary, which contains liabilities, expenses, assets, and more. Once a trial balance is done, it lets a business deduct the double-entry mathematical errors. As such, the major aim of a trial balance is to have an account balance that is predominately free from all types of errors.
Why is it Important to Prepare a Trial Balance?
We have mentioned that the function of a trial balance is to show that balances under debits and credits indeed balance. So, why do we prepare a trial balance report, why is it important?
The effective running of any business is mostly anchored on its financial strength which should be well managed. Here are the uses or the importance of a trial balance report.
To verify financial records
Using the trial balance, one can check if all journals, ledgers, and books of accounts are entered correctly and if they balance. It also verifies that every entry is entered on the correct side i.e. either on the debit side or credit side.
A tool for making Financial Statements
Use the information in the trial balance report to prepare documents such as a balance sheet and Profit and Loss statements.
To correct debit/credit errors
You can use the trial balance to note and correct any given arithmetic errors.
The company will be able to compare the balances of the previous financial year to those of the current year. With such information, the company can be able to make an important decision concerning their company like the need to reduce expenses or increase income.
Useful when preparing an Audit report
Types of Trial Balance
There are three different stages or types of trial balances as discussed below.
The unadjusted trial balance
Since a trial balance report is prepared from the ledger entries, an unadjusted trial balance is one that is prepared before entries in the journals are adjusted. In other words, it is a reflection of the daily debits and credits.
This trial balance is very useful when preparing the adjusted trial balance.
Adjusted trial balance
This one is prepared once all the adjusting entries are done. It shows the closing balances in all of the company’s accounts. It ensures the errors noticeable in the unadjusted trial balance are correct.
This is the main function of trial balance in the company or business:
- It shows that the company’s debit balances and the credit balances are balanced (they are equal)
- It is the reference document when preparing financial statements like the balance sheet and income statement.
Post-closing trial balance
This trial balance posts all balances in the balance sheets with a net balance of zero. It is the one that ascertains that the credit and debit balances are equal. It also serves as the starting trial balance in the coming financial year.
Trial Balance Sample
Here’s an example of the Trial balance of a company.
Adjusted Trial Balance (example)
For the year ended December 31, 2019
Prepare Income Statement from Trial Balance
Preparing an income statement from a trial balance takes the same process as using the report at the end of an accounting cycle to prepare other financial statements like the Balance Sheet and Cash Flow statement.
First, prepare the adjusted trial balance, and use the account information to construct the income statement. Use the details under the revenue accounts and expense accounts. As the income statement shows a company’s financial performance over a specified accounting period, subtract expenses from revenues to get the net income/profit or a net loss.
How to Prepare a Trial Balance from Ledger
When preparing a trial balance from the ledger, you need to post ledger accounts balances onto a worksheet showing the debit and credit balances from the main ledger accounts.
Add the balances in the chart of accounts under each category- e.g. Assets or Cash. Extract these balances and post them as either debits or credits. Refer above to the section “how to prepare a trial balance” to find out which balances go to which side.
How to Prepare Balance Sheet from Trial Balance
In finance, a balance sheet lets a business develop an overall financial status at any given time. Creating this document is as essential as developing income and cash flow statements. The main aim of creating a trial balance is to generate a balance sheet. Below are the 6 steps need to create a balance sheet using a trial balance.
Making a Trial Balance
Making a trial balance is super easy today. All that is needed is reliable accounting software. In most cases, an application gives a business credit and debit entry inputs. Once this is done, you can export the trial balance to other accounting apps. Alternatively, you may print it if you use a manual process. In either case, you only need the ending balance for your general ledger account.
Trail Balance Adjustment
Sometimes you have to adjust a trial balance before it can be used in specific accounting tools like IFRS and GAAP. To achieve this, an accountant will typically use adjusting entries. However, you must carefully document this process to avoid auditing issues.
Eliminate Expense and Revenue Accounts
A trial balance contains expenses, revenue, losses, gains, equity, liabilities, and assets. You will need to eliminate all accounts except equity, liabilities, and assets, which are needed for the creation of an income statement.
A trial balance usually has more items than a balance sheet. This process is achieved through aggregation. As such, all cash accounts that are in a trial balance get aggregated as a single item on a balance sheet. Some of the common aggregate items you can use on a balance sheet are:
- retained earnings;
- accounts receivable;
- accounts payable;
- fixed assets.
Balance Sheet Cross-Check
This step involves ensuring the assets on a balance sheet are equal to the totals for stockholders’ equity and liability accounts.
Finalizing Balance Sheet Layout
A balance sheet can be presented in multiple formats. Therefore, you will need to output your final balance sheet in the format your organization desires. One popular format that is used is the comparative format. This layout lets you highlight a business’s financial position against dates.
What Can Make a Trial Balance not Balance?
- Wrong amount of entry
- Correct entry in the wrong column
- Failure to enter an amount in the ledger
- Arithmetic error in the ledger account
The following errors can be detected using a trial balance.
- Posting errors that occur at the ledger entry stage
- Transcription errors – entering credit side amounts on the debit side or a debit entry entered in the credit column.
- Calculation errors can result from extracting the wrong ledger account balance.
Parse Trial Balance Report – Guide
- Make a Zap
- Select PDF.co App and Choose Document Parser Action Event
- Document Parser Configuration
- PDF.co Test and Result
- Trial Balance Report Output
In this tutorial, we prepared a step-by-step guide on how to parse Trial Balance Report using PDF.co and Zapier. Below is the screenshot of the sample Trial Balance Report to parse data.
Step 1: Make a Zap
Step 2: Select PDF.co App and Choose Document Parser Action Event
Next, select the PDF.co app for the App Event and choose the Document Parser to parse invoices, reports, statements, and other documents.
Step 3: Document Parser Configuration
Now, let’s configure the Document Parser.
- In the Input field, type the link of the source file you want to parse data.
- In the Template ID field, enter the ID of the document parser template . You can use the PDF.co Document Parser Editor to parse data and create a new template ID. Kindly click on this link for more tutorials.
You may now send the request to PDF.co to process the Document Parser Template.
Step 4: PDF.co Test and Result
Great! PDF.co processed our request successfully and returned the parsed text.
Step 5: Trial Balance Report Output
Here is the Output of the Trial Balance Report with parsed data.
Let’s Explain the Analysis of Trial Balance
The analysis of trial balance analysis lets a business identify missing entries in its financial records. Also, it helps you address any concerns on a ledger before closing.
To analyze a trial balance, you will need to first generate it from a ledger. Next, you should verify the credit and debit columns are in agreement. You may review the accounts and make necessary adjustments if required.
You will want to use an adjustment entry to balance accounts when a problem is identified. Also, review and verify the balance. Finally, present any adjustments and state the finished trial balance.
A trial balance report is a very important document that any business cannot avoid preparing. It will help you compare your business with peers and make an important decision that nurtures your business.