What is Trial Balance

Trial Balance
Trial balance holds significant importance in every business. We can even say that it is the summary of any company that summarizes that business's financial health. The ledger includes multiple entries in different accounts, and taking all the ledgers together and representing them as a single worksheet of a particular time is termed the trial balance. Therefore, people often advise checking the company's trial balance before investing in it. Let's study more about the trial balance in brief.

What is the Trial Balance?
It is a worksheet representing the report that has a balance of all general ledger accounts of any firm for a given period. This balance sheet is usually prepared at the end of the month. The trial sheet ensures that the entries of any given company are mathematically correct. Moreover, it also identifies the accurate balance of both debit and credit entries based on the general ledger transactions.

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Items Included in a Trial Balance
Items included in a trial balance are as follows:
  • It has a complete list of the total of all general ledgers.
  • Account number and description with the final (credit or debit) balance.
  • The last date of the accounting period.
  • Working of a Trial Balance

The debit balances are on the left column in such worksheets, whereas the credit balance remains on the right column. The account title is present on the far left of both these columns. A trial balance must have an equal number of total debits and total credits. If the values are not similar, the sheet will be unbalanced with some mathematical errors. However, even having equal credits and debits, there are still chances of errors in the company's accounting system. The missing transactions are one such example.

Characteristics of a Trial Balance


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Some of its striking characteristics of it are as follows:
  • This balance is based on the double-entry system; it must have all debit ledger totals equal to all credit ledger totals of a particular date. Thus, it provides mathematical accuracy.
  • It provides an overview of the financial health with the complete transaction of any organization.
  • It tells all about the profits and losses incurred by an organization in a particular period. This information is necessary for the proper growth of the organization.
  • It also shows an organization's credibility or borrowing capacity at a given period.

List of Undetectable Errors in a Trial Balance
Numerous errors remain undetectable even after creating a trial balance. These undetectable errors are as follows:
  • If any transaction was not present in the system, then this error cannot be detected in this balance sheet. Such error is an error or omission.
  • If there were the entry of an incorrect amount on both sides, it also remains undetectable. Such error is the error of the original entry.
  • In some cases, the entries of transactions are correct but reversed. It means that the account that should be debited is credited, and the account to be credited is debited. Such error is the error of reversal.
  • Sometimes there is a violation of fundamental principles of accounting; such errors are the principal errors. They entered the suitable transactions in the correct order, but the account choice was wrong. These errors are usually a result of a lack of knowledge.
  • The commission error is the following error similar to the principle error. The significant difference is that the commission error occurs due to an unintentional oversight.

What is the definition of a Trial Balance definition?
According to the trial balance definition, a worksheet with a list of all credit and debit balances in a ledger (double-entry ledger) for a given time is the trial balance of any organization. However, the total credit balance must equal the total debit balance. Otherwise, there must be an error in the ledger.

What is the difference between a general ledger and a trial balance?
A general ledger states all the transactions by all accounts, whereas a trial balance only shows the totals of the account. The trial balance does not show the individual transactions. The primary use of the general ledger is for audits, loan applications and reporting financial data. On the other hand, the trial balance is applied in periodic reviewing an organization of any errors in the ledger.

State the three basic types of Trial Balance reports?
The three basic types of Trial Balance reports are the adjusted trial balance, the unadjusted trial balance and the last post-closing trial balance report. They all have the same format, but different adjustments need to be made before the accounting period of any organization.

What is the primary motive for creating a trial balance?
The main aim of creating a trial balance is to attain a mathematical accuracy for any organisation's transactions.

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