Trial balance

What it means

A trial balance lists every account with its opening balance, the turnover for the period and the closing balance. Total debits must equal total credits - that is the control property of double-entry bookkeeping.

It sits between the general ledger and the annual closing: the figures in the balance sheet and profit and loss statement come from regrouping these balances into statement lines.

It differs from the accounting journal in how it is arranged: the journal lists entries in date order, as documents came in, while the trial balance totals them by account. The journal tells you what happened on a given day, the trial balance where everything ended up; a review needs both, because a missing entry need not show up in the totals.

How it works in practice

Monthly it works as a quick check: an odd balance on an account, negative stock, movement where none should be. An experienced accountant spots an error here faster than in a detailed document listing.

With sub-accounts it can be read for management too: cost by site, revenue by product. Partner account balances are compared with the sub-ledger.

On a handover of the books from a previous accountant, the first thing we ask for is the closing trial balance of the last closed year. The opening balances of the new year in our system must agree with it to the cent, and every difference is explained before the first monthly processing, not at year end.

What to watch out for

A balanced trial balance does not mean correct books - it only proves every entry has two sides. A document posted to the wrong account or the wrong period leaves it balanced, so a substantive reconciliation against documents always accompanies the balance check.

A trial balance printed before the month-end closing entries, without accruals and deferrals, exchange differences and estimated items, shows a different result from the one the company really has. When a bank receives such a report in support of a loan, the later corrected figures look like a deterioration and take a lot of explaining.