A trial balance is a financial report that lists the balances of all general ledger accounts of a company at a certain point in time. It is a bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal. The purpose of a trial balance is to prove that the value of all the debit value balances equals the total of all the credit value balances. If the total of the debit column does not equal the total value of the credit column, then this would show that there is an error in the nominal ledger accounts, which must be found before a profit and loss statement and balance sheet can be produced. A trial balance is usually prepared by a bookkeeper or accountant who has used daybooks to record financial transactions and then post them to the nominal ledgers and personal ledger accounts.
A trial balance includes a list of all the general ledger accounts contained in the ledger of a business. The accounts reflected on a trial balance are related to all major accounting items, including assets, liabilities, equity, revenues, expenses, gains, and losses. It is primarily used to identify the balance of debits and credits entries from the transactions recorded in the general ledger at a certain point in time. The trial balance is done to check that the debit and credit column totals of the general ledger accounts match each other, which helps spot any accounting errors.
The trial balance is often the first step in an audit procedure because it allows auditors to make sure there are no mathematical errors in the bookkeeping system before moving on to more complex and detailed analyses. It is not an official financial statement and is usually used internally and is not distributed to people outside the company. The trial balance is important in case of adjustments, and whenever any adjustment is performed, it is necessary to run a trial balance and confirm if all the debit amount is equal to credit amount.
