7 Importance of Trial Balance Explained

what is the purpose of the trial balance

A trial balance is a report that lists the balance of the accounts in a business’s general ledger. It’s an internal document that helps accountants ensure that the books are balanced. The main purpose of a trial balance is to check the mathematical accuracy of accounts following the process of journalizing and posting. If done correctly, the total debit amount should be equal to the total credit amount.

  • However, this does not mean that there are no errors in a company’s accounting system.
  • If you check the above trial balance again, you’ll realize that this list of balances is also a summary of all transactions made during the accounting period.
  • It’s primarily used to verify that the total of all debits equals the total of all credits, which means the company’s accounts are balanced.
  • As the bookkeepers and accountants examine the report and find errors in the accounts, they record adjusting journal entries to correct them.
  • Adequate knowledge of the chart of accounts and its classification helps in organizing the accounts systematically, making it easier to compile the trial balance.
  • Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more.

Once you’ve double checked that you’ve recorded your debit and credit entries transactions properly and confirmed the account totals are correct, it’s time to make adjusting entries. A trial balance is a financial statement summarizing trial balance the debit and credit balances of all accounts in a company’s ledger at a particular time. Imagine a world where businesses operate without checks and balances, where financial records are as chaotic as a toddler’s playroom.

Which of these is most important for your financial advisor to have?

Here is an example that will help you understand how trial balance is prepared and how to understand the accuracy of the result. A balanced Trial Balance Report is a cause for cautious celebration, as it indicates that the two sides of the accounting ledger match. But don’t set sail just yet; there could still be errors lurking in the detail.

By now, we are clear that trial balance’s primary objective is to ascertain the accuracy and detecting of errors. With the diversity of business operation and frequent need for financial statements, most of the businesses are using accounting software for managing the books and generating financial statements. Accounting software like TallyPrime, is designed to ensure that debit and credit always match at the time of recording the transaction itself. Thus, matching of the trial balance is a ‘Thing of Past’ and the traditional need for someone to depend on trial balance is eradicated. In simple terms, a trial balance refers to a statement or report outlining the balances of all general ledger accounts within an organization.

A quick primer on double-entry accounting

A Trial Balance is a statement that keeps a record of the final ledger balance of all accounts in a business. Trial Balance is prepared at the end of a year and is used to prepare financial statements https://www.bookstime.com/ like Profit and Loss Account or Balance Sheet. The main objective of a Trial Balance is to ensure the mathematical accuracy of the business transactions recorded in a company’s ledgers.

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