Steps for preparing a trial balance

The entries in this column are the original debits and credits, plus or minus the adjusting entries. Add up the amounts in the final debit column and add up the amounts in the final credit column. If not, an adjusted account balance was not carried forward correctly. The trial balance is now ready for use in the preparation of financial statements. It is quite possible that the preliminary financial statements that are derived from this trial balance will require further adjustments, in which case the additional changes are made to the adjusting entry columns, and new financial statements are created.

A trial balance is not needed in a computerized accounting system, since the software automatically prepares the financial statements from the information in the general ledger; there is no intermediate step to also prepare a trial balance. College Textbooks. Accounting Books. Finance Books. Operations Books. Articles Topics Index Site Archive. About Contact Environmental Commitment. How Does a Trial Balance Work? The total of the debit column and credit column should be the same.

Under balance method, only the balances of all the ledger accounts are shown in the trial balance. The trial balance accounts are listed in a specific order to help in the preparation of financial statements.

Furthermore, the assets and liabilities have to be listed in order of liquidity, which refers to how quickly an asset can be converted to cash to pay off liabilities. The most liquid assets are listed first. This includes cash and short-term accounts receivables. The purpose of a trial balance is to ensure all the entries are properly matched.

If the trial balance totals do not match, it could be the result of a discrepancy or accounting error. This is an unadjusted trial balance. Before the errors can be identified and corrected, a temporary suspense account is created to match the trial balance totals temporarily. Once the errors are located, adjusting entries are posted to the trial balance. Once this is done, the trial balance is considered an adjusted trial balance.

Preparing a trial balance regularly helps a business in spotting errors in its books. You can unsubscribe at any time by contacting us at help freshbooks. Preparing and adjusting trial balances aid in the preparation of accurate financial statements.

Although you can prepare a trial balance at any time, you would typically prepare a trial balance before preparing the financial statements. On the trial balance the accounts should appear in this order: assets, liabilities, equity, dividends, revenues, and expenses.

Within the assets category, the most liquid closest to becoming cash asset appears first and the least liquid appears last. Within the liabilities, those liabilities with the shortest maturities appear first.

Study the following example of a trial balance for the More Flowers business. Note that totals for the Debit and Credit entries come from the ending balance of the T-accounts or ledger cards.

When using ledger cards, you will be calculating the balance after each transaction and the balance typically follows the normal balance of the accounts remember, normal balance is how we increase an account.

The equality of the two totals in the trial balance does not necessarily mean that the accounting process has been error-free. Serious errors may have been made, such as failure to record a transaction, or posting a debit or credit to the wrong account.

While we still have not prepared financial statements, we have captured the activity and organized it into a trial balance.