What is a trial balance?
As mentioned above, the accounts have to fall in line with the accounting equation.
Which means having an understanding of debits and credits. You can learn more about debits and credits here.
Remembering which column each account balance goes in comes with practice.
In the meantime, here is a debits and credits cheat sheet you can print out and pin by your computer.
The one that increases the account is the one that indicates what column it should go in as demonstrated in the table below.
Assets = Debit Column
Liabilities = Credit Column
Equity = Credit Column
Income = Credit Column
Expenses = Debit Column
The above trial balance example is for the end of the financial year.
It has all the figures for the full year of trading.
The debit column and credit column add up to the same total of $64,030.70, making the difference $0.00 - which means it is in balance.
All the accounts above the solid line (just below retained earnings) are:
All the accounts below that line (starting with sales) are:
Free Trial Balance Template: Excel
Free Trial Balance Template: PDF
The above example is the unadjusted report.
This means it is the report printed and saved before the accountant has prepared the annual financial statements and tax returns.
Any adjustments that the Accountant makes are done with journal entries.
The trial balance will be prepared again to make sure the accounts balance after the adjustments are done – the adjusted report.
In modern bookkeeping software like Xero you won’t find the words adjusted and unadjusted – it applies more to manual bookkeeping.
So, even though adjustments are made in the software, the trial balance report will simply be called Trial Balance. There is no Adjusted/Unadjusted Trial Balance.
How do you know then that the final adjustments have been made?
The temporary accounts will be empty. Reminder: the temporary accounts are the Income and Expense accounts.
Note: You will not be transferring detailed transactions from all the previous years of trading into the new software.
It just isn’t going to happen unless you are happy wasting many, many hours and $$ doing the books all over again for the past several months or years in the new system (seriously, why would you, unless you had a disaster with your computer and lost everything because of no backups), so you need to keep backups and print-outs of all the information from the old software giving you data to refer back to when required.
The fantastic feature with online software options is that they backup everything for you and make it easy in many cases to transfer data from one program to another.
In the new software, you should only have the opening balances as taken off the trial balance from the old software.
If your business is brand new, and you haven’t kept any kind of bookkeeping records yet, you don’t need a trial balance to start off your books in new software. Good news, eh!
If you have been keeping bookkeeping records already manually or in some sort of software, you will need:
from which you can pull all totals and put into a Trial Balance in the debit and credit format – hopefully you can get it to balance.
If you don’t have a balance sheet or income statement, give your cashbook to an experienced bookkeeper or accountant who can prepare this all for you. Expect questions from them to aid them in preparing accurate reports.
Or you can prepare your own balance sheet and income statement, and finally a trial balance.
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