Trial Balance

A basic rule of double-entry accounting is that for every credit there must be an equal
debit amount. From this concept, one can say that the sum of all debits must equal the
sum of all credits in the accounting system. If debits do not equal credits, then an error
has been made. The trial balance is a tool for detecting such errors.
The trial balance is calculated by summing the balances of all the ledger accounts. The
account balances are used because the balance summarizes the net effect of all of the
debits and credits in an account. To calculate the trial balance, construct a table in the
following format:

Trial Balance Calculation

Account Debits Credits

Account 1 xxxx.xx

Account 2 xxxx.xx

Account 3 xxxx.xx

.
.
.

Account 4 xxxx.xx

Account 5 xxxx.xx

Account 6 xxxx.xx

.
.
.

________ ________

Totals: xxxx.xx xxxx.xx

In the above trial balance, the balances of Accounts 1, 2, and 3 are net debits, and the
balances of Accounts 4, 5, and 6 are net credits. The totals of the debits and credits
should be equal; if they are not, then an error was made somewhere in the accounting
process. Some common errors include the following:
1. Error in totaling the columns - make sure that the trial balance columns were
summed properly.
2. Error in transferring account balances to proper trial balance columns -
make sure that debit and credit account balances are in the appropriate debit and
credit columns of the trial balance calculation. Check for reversed digits and
misplaced decimal points.
3. Omission of an account - an account may be missing in the trial balance
calculation.
4. Error in account balance - an error may have been made in the calculation of a
ledger account balance.
5. Error in posting a journal entry - a journal entry may not have been posted
properly to the general ledger.
6. Error in recording a transaction in the journal - for example, making an error
in a debit or credit, or failing to enter a debit or credit.
In general, the most effective way to isolate an error is to work backward from the trial
balance itself to the initial journal entry, as outlined in the above list.
Note that a balanced trial balance does not guarantee that there are no errors. An error
of omission could have been made in which a transaction was not recorded, a journal
entry could have been posted to the wrong ledger account, or a debit and credit could
have been transposed. Such errors are not caught by the trial balance.