Bookkeeping basics

The trial balance

Every balance in two columns; the totals must agree.

Draft: not yet reviewed by a teacher

Why it exists

The trial balance checks the arithmetic of the double entry and is the starting point for the financial statements. Year-end adjustments are made to it and the statements are drawn up from it.

Key rules

Each balance goes in the column of its side: assets, expenses and drawings are debits; liabilities, income and capital are credits.
Debit and credit totals must agree. Until the errors are found, a difference is put to a suspense account.
It does not reveal errors where debits still equal credits: omission, commission, principle, original entry, complete reversal and compensating errors.
It does reveal one-sided entries, unequal debit and credit amounts, two entries on the same side, an omitted balance and casting errors.
An opening trial balance holds only the accounts carried into the new year: assets, liabilities and capital.

Examples

Kamal Print's trial balance at 31 December:

Dr: Bank 4,300, Equipment 9,500, Receivables 2,800, Purchases 17,600, Rent 6,000, Drawings 4,300 = 44,500
Cr: Capital 15,000, Payables 3,100, Sales 26,400 = 44,500

The totals agree.

A trial balance that agrees

A credit sale of 600 was not recorded at all.

Receivables and sales are each understated by 600
Totals: 44,500 and 44,500, still equal

The trial balance does not show this error.

An error the trial balance misses

How it works

Every correct entry adds equal amounts to both columns, so the totals agree. Agreement only proves that debits equal credits, not that the accounts and amounts are right.

An opening trial balance has no income or expenses: they were closed to profit, and profit less drawings went into capital.

Traps

Taught in the course

Key rules

Each balance goes in the column of its side: assets, expenses and drawings are debits; liabilities, income and capital are credits.

Debit and credit totals must agree. Until the errors are found, a difference is put to a suspense account.

It does not reveal errors where debits still equal credits: omission, commission, principle, original entry, complete reversal and compensating errors.

It does reveal one-sided entries, unequal debit and credit amounts, two entries on the same side, an omitted balance and casting errors.

An opening trial balance holds only the accounts carried into the new year: assets, liabilities and capital.