The trial balance
Imagine that Ximena opens a stationery store, records dozens of transactions in a month, and at the end she wants to know something simple: are my records done correctly? Checking every entry one by one would take hours. There is a quick test with two columns and two sums. How can a simple sum warn you that there is an error? We'll find out on this page.
What a trial balance is
With double-entry bookkeeping, every entry debits and credits the same amount. If every entry follows that rule, the total of the debits across the whole ledger equals the total of the credits. The trial balance uses that equality to keep watch over your records.
Explain in your own words what a trial balance is and why it is prepared at the end of a period. Include in your explanation why, if every entry was recorded correctly,…
Explain in your own words what a trial balance is and why it is prepared at the end of a period. Include in your explanation why, if every entry was recorded correctly, the sum of the debit balances must equal the sum of the credit balances.
How it is built
You need to know the nature of each balance: asset and expense accounts usually have a debit balance; liability, capital, and income accounts, a credit balance. The balance comes from subtracting the smaller side from the larger side in the T-account; it is placed in the column of the side that is left over.
| Account | Debit balance | Credit balance |
|---|---|---|
| Bank | $\$12,000$ | |
| Merchandise | $\$8,000$ | |
| Electricity expense | $\$4,000$ | |
| Suppliers | $\$5,000$ | |
| Capital stock | $\$13,000$ | |
| Sales | $\$6,000$ | |
| Totals | $\$24,000$ | $\$24,000$ |
Using the following balances of the stationery shop «El Compás», build its trial balance (one column of debit balances and one of credit balances), write the total of…
Using the following balances of the stationery shop «El Compás», build its trial balance (one column of debit balances and one of credit balances), write the total of each column, and conclude whether the trial balance checks out:
| Account | Balance | Nature |
|---|---|---|
| Bank | $\$37,050.00$ | debit |
| Merchandise | $\$20,500.00$ | debit |
| Rent expense | $\$7,000.00$ | debit |
| Suppliers | $\$14,300.00$ | credit |
| Owner's capital | $\$35,000.00$ | credit |
| Sales | $\$15,250.00$ | credit |
Also: if the two totals did not match, what would that tell you about how the transactions were recorded?
What it tells you and what it doesn't when it balances or doesn't
If the sums don't match, there is an error: an entry with different amounts on the debit and credit, a posting copied incorrectly to the ledger, a miscalculated balance, a balance in the wrong column, or a sum done wrong. Check in this order: first the sums of the trial balance, then the ledger balances, and finally the entries in the journal.
If the sums match, all you know is that the debits and credits were equal. It is not a complete guarantee.
From the journal to the complete trial balance
Now put it all together: journal → ledger → balances → trial balance.
During its first month, the taco shop «El Fogón Norte» carried out these transactions: 1. The owner contributed $\$60,000.00…
During its first month, the taco shop «El Fogón Norte» carried out these transactions:
-
The owner contributed $\$60,000.00$ in cash to start the business.
-
It bought merchandise on credit for $\$15,000.00$.
-
It sold products for cash for $\$22,000.00$.
-
It paid $\$8,000.00$ to its suppliers.
-
It paid $\$4,500.00$ for the shop's rent.
- a) Record the five transactions in the journal (in each entry state which account is debited and which is credited, with the amount).
- b) Post the movements to the ledger and compute the balance of each account.
- c) Prepare the trial balance and verify that the debit and credit totals match.
Back to the beginning: Ximena doesn't check every entry; she builds the trial balance and compares two sums. If they balance, her records preserve the equilibrium of double-entry bookkeeping; if not, she knows she must look for an error.