You will now learn what a trial balance balance is and how to draw a trial balance. By now you have probably figured out that for every debit entry there is an equal credit entry. All items that have been recorded on the debit side should equal all items recorded on the credit side of the accounts, and vice versa (i.e. all items recorded on the credit side should equal all items recorded on the debit side). This is so because for every debit entry there is an equal credit entry and for every credit entry there is a debit entry of equal amount. To check that there is indeed a matching credit entry for every debit entry, and a matching debit entry for every for every credit entry we prepare a “Trial balance”. A trial balanceis just a statement and does not form a part of the double entry system.. It is prepared by drawing up two columns and then entering the debit balances in each account in one column and the credit balances in each account into the other column. The balances listed in the two columns are then added and it is made certain that they are equal. This will ensure that you have not missed a corresponding credit entry for a debit entry that has been recorded or a corresponding debit entry for a credit entry that has been recorded. A trial balance is not just prepared to verify whether the debits and credits are equal but it also helps in checking the balance in each account so profit and loss account and balance sheet can be drawn up. It would be very difficult to prepare financial statements (profit and loss account and balance sheet) otherwise. To make things easier, instead of entering each item in each account separately into the trial balance, a total of the balance of each account is taken. Once a trial balance has been prepared it will look something like this:
Note that the trial balance always has the date of the lastday of the accounting period to which it relates. A trial balance can be drawn up at any time. However, it is normal practice to prepare one at the end of an accounting period before preparing financial statements.
It is common to assume that if the trial balance balances, the accounts are correct. This is NOT the case though. For instance if a transaction is omitted altogether the trial balance will still balance. The trial balance will also balance if the wrong amount has been debited and credited or if the entries have been made in the wrong accounts.