Trial Balance: What It Proves and How to Find Errors

What a trial balance is

A trial balance is a list of every account in the ledger with its balance at a given date. Debit balances go in one column, credit balances in the other, and both columns are added up. If the bookkeeping has followed the rule of double entry, the two totals are equal.

It is usually prepared at the end of a period, in up to three versions:

• the unadjusted trial balance, straight from the ledger, which is the starting point for the adjusting entries;
• the adjusted trial balance, after the adjustments, from which the financial statements are prepared;
• the post-closing trial balance, after the closing entries, which lists only asset, liability and equity accounts.

Worked example: a trial balance

A consulting business recorded five transactions in its first month: the owner invested $20,000; it bought equipment for $5,000 (paying $2,000 in cash, $3,000 on account); it billed a client $1,500; it paid rent of $800; and the client paid $1,000. The ledger balances (see the T-accounts guide) give this trial balance:

Account	Debit	Credit
Cash	18,200
Accounts Receivable	500
Equipment	5,000
Accounts Payable		3,000
Kim, Capital		20,000
Service Revenue		1,500
Rent Expense	800
Total	24,500	24,500

Accounts are usually listed in chart-of-accounts order: assets, liabilities, equity, revenue, expenses.

What equal totals prove

Equal totals prove one thing: in the ledger, the debits recorded equal the credits recorded. That rules out a class of mechanical errors, such as posting only one side of an entry or adding up an account wrongly.

What equal totals do not prove

A trial balance can balance and still be wrong. Errors that keep debits equal to credits go unnoticed:

• Omitted transaction: an invoice never recorded at all.
• Duplicated transaction: the same entry recorded twice.
• Wrong account, right side: rent debited to Utilities Expense instead of Rent Expense.
• Wrong amount on both sides: a $540 invoice recorded as $450 in both the debit and the credit.
• Reversed entry: the debit and the credit swapped, so both accounts move the wrong way by the same amount.
• Compensating errors: two unrelated errors of the same amount that cancel each other.

These are found by other checks: bank reconciliations, statements from suppliers and customers, and reviewing each account for balances that look unreasonable.

Errors that make it unbalance

When the totals differ, at least one of the following happened:

• one line of an entry was not posted, or was posted twice;
• an amount was posted to the wrong side of an account;
• an amount was copied wrongly on one side only;
• an account was added up wrongly;
• a balance was listed in the wrong column or left out of the list.

A method for finding the error

1. Compute the difference between the two totals.
2. Search for the difference itself. An amount equal to the difference may have been posted on one side only or left out of the list.
3. Halve the difference. If half of it matches an amount in the ledger, that amount may have been posted to the wrong side: a debit posted as a credit changes the totals by twice the amount.
4. Divide the difference by 9. If it divides exactly, look for a transposition (two digits swapped, such as 540 written as 450) or a slide (a misplaced decimal point, such as 800 written as 80). Both always produce a difference divisible by 9.
5. Check each balance against its normal side. An expense with a credit balance or a liability with a debit balance stands out.
6. Re-add the columns and the accounts, then retrace the postings entry by entry.

Worked example: a slide error

Suppose the rent payment was posted correctly to Rent Expense ($800 debit) but as $80 on the credit side of Cash. Cash then shows a balance of $18,920 instead of $18,200:

Account	Debit	Credit
Cash	18,920
Accounts Receivable	500
Equipment	5,000
Accounts Payable		3,000
Kim, Capital		20,000
Service Revenue		1,500
Rent Expense	800
Total	25,220	24,500

The difference is 720. It is not an amount in the ledger, half of it (360) is not either, but 720 ÷ 9 = 80, so a slide or transposition is likely. Looking for an amount where a digit moved by one place leads to the 80 posted to Cash. Correcting the posting to 800 restores the balance.

Worked example: an error the trial balance cannot see

Now suppose the rent was recorded as a debit to Utilities Expense. The trial balance still totals $24,500 on both sides, because the debit was recorded on the correct side, in the wrong account. Once found, the error is fixed with a correcting entry:

Account	Debit	Credit
Rent Expense	800
Utilities Expense		800

The trial balance in other conventions

The idea is the same everywhere; the format changes. In Spain the usual report is the balance de comprobación de sumas y saldos, which shows for each PGC account the total of the Debe side, the total of the Haber side and the resulting balance. In France it is the balance des comptes (balance générale), with the same columns for the PCG accounts. German courses call it the Summen- und Saldenliste (or Summenbilanz and Saldenbilanz). A sums-and-balances layout adds a second check: the total of all debit postings must equal the total of all credit postings, as well as the balances.

Practice

PractiBalance checks each entry before it reaches the ledger, so errors like the slide above cannot pass the checker. Practice multi-step and adjusting and closing items to see how balances build up, and use the glossary for any term you are unsure of.