The trial balance: how to read it and what a balanced result does not prove

The short answer

A trial balance is a list of all ledger accounts with their debit or credit balances at a given date. If the debit balances add up to the same total as the credit balances, the ledger is arithmetically balanced. It is a check on the bookkeeping, not a financial statement: the complete set of financial statements described in IAS 1 does not include it. It is the usual starting point for preparing the income statement and the balance sheet.

A worked example

These are the balances left by the six events in the previous article. Read the double-entry article if you want to see the entries.

Assets and expenses normally carry debit balances; liabilities, equity and income normally carry credit balances. Both columns add up to the same total, so the ledger is balanced.

What to check when you read it

1. Do the debit and credit totals agree? If not, find the difference first.
2. Is any balance on an unexpected side, such as cash with a credit balance or a receivable with a credit balance? There may be an overdraft, a prepayment or an error.
3. Are any amounts very different from the previous period or from what you expect?
4. Do temporary or clearing accounts that should be empty still hold a balance?

What a balanced trial balance does not prove

A balanced result shows only that total debits equal total credits. These mistakes leave it balanced:

• a transaction that was never recorded;
• a transaction recorded twice;
• an amount posted to the wrong account, for example a repair cost posted to rent;
• a wrong amount entered on both sides of the same entry;
• two errors that cancel each other;
• an item recorded with the wrong accounting treatment, such as equipment recorded as an expense.

If the totals do differ, compare the difference with individual entries. A difference equal to one amount may be a one-sided entry; a difference equal to twice an amount may be an amount entered on the wrong side; a difference divisible by 9 can point to transposed digits.

In TexaCore

This section describes the product. The trial balance screen reads posted entries live, with opening balances, a date range and an optional second presentation currency. The trial balance, the income statement and the balance sheet are shown on screen; the screens have no print or export action.

TexaCore refuses to post an entry whose debits and credits differ, so the more useful review of its trial balance is the one in the list above: unexpected sides, amounts and accounts, which no trial balance can confirm by itself. See reports and accounting. Next: income statement and balance sheet.

Scope of this article

This article explains general accounting principles using IFRS terms and an invented company. Tax and statutory rules differ by country and are not covered; check them with a qualified accountant.