What is a trial balance?
A trial balance is a list of all the General ledger account contained in the ledger of a business. This list will contain the name of the ledger account and the value of that account. The value of the ledger will hold either a debit balance value or a credit balance value. The debit balance values will be listed in the debit column of the trial balance and the credit value balance will be listed in the credit column. The profit and loss statement, balance sheet and the other financial reports can then be created by using the ledger accounts that are listed on the trial balance.
Where does the trial balance come from?
The name comes from the purpose of a trial balance which is to prove that the value of all the debit balances equal the total of all the credit balances. Listing every nominal ledger balance will ensure that you have accurate reports of the nominal ledgers that you can use in the financial reports of a business’s performance. If the total of the debit column does not equal the total of the credit column then this would show that there is an error in the nominal ledger accounts. This error should be identified before a profit and loss statement and balance sheet can be produced.
The trial balance is usually created by a bookkeeper or an accountant who has used daybooks to record financial transactions and then post them to the nominal ledgers and personal ledger accounts. The trial balance is part of the double-entry bookkeeping system and uses the classic ‘T’ account format for presenting values.