What is a trial balance?

What does a trial balance do?

Every transaction in double-entry bookkeeping is recorded twice, as a debit in one account and a credit in another, for the same amount. If that has been done correctly for every transaction, the total of all debit balances must equal the total of all credit balances. The trial balance is the report that checks it.

It is a working document, not a financial statement. Nobody outside the business sees it. It is the point at which the bookkeeper hands over to whoever prepares the accounts, and the accountant's year-end adjustments — accruals, prepayments, depreciation — are applied to it before the profit and loss account and balance sheet are drawn up.

Accounting software produces one on demand, and it always balances, because the software will not let a one-sided entry through. That makes it less of a check than it was, and more of a summary of where every balance stands.

A worked example

A small decorating business at its year end. Assets and expenses carry debit balances; liabilities, capital and income carry credit balances. Both columns come to £62,200, so the ledger is arithmetically sound.

What does a trial balance not catch?

• —A transaction left out entirely — both sides are missing, so it still balances.
• —A transaction posted to the wrong account, such as a van repair coded to office costs.
• —A transaction entered twice in full.
• —The right amount posted the right way round, but between the wrong two accounts.