The Trial Balance Explained

The trial balance is a prerequisite to the preparation of financial statements.  The purpose of doing a trial balance is to check the accuracy of the book keeping.  

By doing a trial balance, the Debits and Credits for each GL Account are totaled. The sum of these Debit and Credit totals for all GL Accounts must be identical.

The integrity of the financial statements depends on the accuracy of the transactions entered.  The trial balance is done to confirm that the entries balance.

What does a Trial Balance look like?

A Trial Balance is a list of all the GL accounts.  Each row represents one GL Account.  

There are columns for the GL account Name, Number, Debit and Credit amounts.  Additional columns can have information about the GL account Type and balance.  

A final row tallies the Debit and Credit columns.  The Trial Balance Debit and Credit totals must be equal before the Trial balance is said to be 'in balance'. The Trial Balance must be 'in balance' before any financial statements can be made.

The GL Accounts are ordered from top to bottom in ascending GL account Number sequence.  Below is an example of a Trial Balance.

Each row represents a GL account.  In this slide, the GL account, 'Computer equipment' is shown as a 'T' account.

Trial Balance

As we have seen, trial balances are made before generating financial statements to confirm that the Debit and Credit entries for the GL accounts are 'in balance'.

A trial balance that does not balance can indicate several errors, such as:

• A GL account entry may have been omitted.  

• An amount may have been entered incorrectly as a debit when it should have been entered as a credit or vice versa.

• An amount may have been entered incorrectly.

• The calculations done to produce the Trial Balance may be incorrect.

Any error requires time to locate and correct.

Fortunately, in TeemWork the GL Account Entries for all transactions are always in balance.  It follows that in TeemWork, the Trial Balance is also always in balance.

The GL Accounts are always in balance because they are updated automatically as transaction are entered. No manual steps are involved, so manual errors are avoided. 

To find out more about:

• how Checks are transformed into GL Account Entries, click here.

• how Invoices are transformed into GL Account Entries, click here.

In TeemWork, It is possible to review all the Entries for any GL Account as well as its Debit total, its Credit total and the GL account Balance. It is also possible to view the transaction that resulted in any GL Account Entry at any time with only one click.

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