What is trial balance?

A trial balance is defined as a bookkeeping or accounting report that shows all of a company's general ledger accounts at a specific point in time. The ledger balances are aggregated into equal debit and credit account columns.

The primary use of a trial balance is to ensure that entries in a company’s bookkeeping system are mathematically correct. A company prepares the trial balance regularly, typically at the end of each reporting period.

On top of detecting errors in entries, the trial balance is used to make the necessary adjustment on entries to the general ledger. After the adjusting entries have been posted to ensure that the overall debits and credits remain balanced, the trial balance is recalculated.

The trial balance is not a legally binding financial statement and is only used within the organisation. It is not shared with external parties.

Trial balance example

Below is an example of a trial balance worksheet:

Source: Corporate Finance Institute

How does trial balance work?

Companies initially record their business transactions in bookkeeping accounts in the general ledger. However, these accounts may have been debited or credited during a specific accounting period before being put together in a trial balance worksheet.

It’s also possible that some accounts were used to record several business transactions. As a result, the trial balance worksheet ending balance for each ledger account is the sum of all debits and credits submitted to that account based on all linked business activities. 

Each accounting entry’s total debits and credits must match at the end of the accounting period. If the debit and credit totals do not match in the trial balance, it means there is one or more unbalanced transactions.

Each accounting entry’s total dollar amount of debits and credits is required to match. As a result, if the debit and credit totals on a trial balance do not match, it suggests the general ledger has one or more transactions that are not balanced.

The trial balance explains the mathematical error of the general ledger. However, there are several errors that the trial balance cannot be traced, such as a double-entry transaction and if the entered transaction violates the fundamental principles of accounting.