Preparing the Trial Balance
Steps to Prepare the Trial Balance
Here are the steps you will undertake to prepare the trial balance:
- For each ledger account — Cash, Accounts Payable, etc. — total your credits and debits.
- If the credit total is larger, subtract the debit total from the credit total to get your ledger account total which goes in the credit column of the trial balance
- If the debit total is larger, subtract the credit total from the debit total to get your ledger account total which goes in the debit column of the trial balance
- Put the ledger account total in the credit or debit column of your trial balance (as identified above).
- When you have debit or credit totals for each ledger account, add all of your credit totals to get a credit grand total.
- Add all of your debit totals to get a debit grand total. This is your trial balance.
Unbalanced Trial Balance
If you have an unbalanced trial balance, then you have an error somewhere in the accounting process. Examples of problems that can unbalance a trial balance include:
- Adding the debits and credits for the trial balance incorrectly;
- Forgetting to include a ledger account balance on the trial balance;
- Putting the ledger account balances in the wrong debit/credit column in the trial balance;
- Writing the wrong ledger account balances in the trial balance columns;
- Miscalculating the ledger account totals;
- Posting a journal entry incorrectly to the general ledger, whether using the wrong number or getting your debits/credits mixed up;
- Making an error in your journal entry, whether using the wrong number or forgetting part of a compound journal entry.
In order to proceed, you'll need to figure out why the trial balance is unbalanced and fix it. (Read more about balancing an unbalanced trial balance.)
Balanced Trial Balance
If all of your journal entries were posted properly (and error-free) in the general ledger, your debit grand total and credit grand total should balance, and you can move on in the accounting cycle. If the debit and credit grand totals do not balance, then you have an error to find somewhere in your transaction posting process (journal to general ledger to trial balance).
It's possible to have a posting error even if the debits and credits do balance, but that will get found and solved later in the accounting cycle. Examples of problems that would not show up in the trial balance include:
- Putting the credit amount in the debit column and the debit amount in the credit column for a particular transaction;
- Recording a transaction in an incorrect account;
- Forgetting to record a journal entry as a general ledger transaction;
- Neglecting to make a journal entry at all.
Preparing a trial balance more frequently means that you have fewer transactions to go through, so if there is an error you can (usually) find it more easily. Once you have a balanced trial balance, you can proceed to adjusting entries, the next step in the accounting cycle. Remember, though, you don't have to wait until the end of the accounting period to prepare a trial balance!