Trial Balance

A trial balance is one of the key concepts of accounting and it will ensure you that the books are inorder. In fact, it is a control point which can identify an error in financial process before it becomes a problem. Therefore, it is a very critical component of the accounting cycle.

Stay with us to the end of this blog so that you can be able to master in reporting trial balance.

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    Trial Balance Meaning

    It is a report in which all the balances as per the accounts are listed down in the general ledger. And, you need to see if the total debits are similar to the total credits or not. It validates the double-entry accounting mechanism which is fundamental in all sense by which every transaction must have an impact of at least two accounts as are debited and the other credited.

    Key Components 

    Debits: Account money is coming into the business or to an asset account. It’s the balance of the account increases.

    Credits: Account for money flowing out of the business or account liability balance increase

    Types of Trial Balances

    Here are three trial balances that the professional accountants commonly use in order to enhance correctness in accounting.

    Unadjusted Trial Balance: The unadjusted one is trial balance prepared at the end of the accounting period before adjusting entries. It contains summary of all the general ledgers accounts on the balances of the books of accounts.

    Adjusted Trial Balance: This is made when all adjustments such as the accrued and prepaid items which may affect the net profit are made. These are the cost and income that are not yet in the record.

    Post-Closing Trial Balance: You need to prepare this after the closing of temporary accounts which include revenues and expenses. It affirms rid that all the temporary accounts are put at zero and there should be only permanent accounts in the balance sheet.

    The Purpose of Trial Balance

    The most important purpose of it is to check the equality of total debits and the total credits in the company’s accounts. It has three major roles, which include:

    Ensuring Accuracy: Catches errors on the books concerning omission of entry, duplication of entry, and transposition of numbers.

    Error Detection: Useful in finding mistakes that might have taken place upon recording financial transaction entries that happened within the financial year, which would be corrected before the preparation of financial statements.

    Financial Reporting: Prepares on the basis of financial reporting drawn from a trial balance, such as the balance sheet or income statement.

    Trial Balance Sheet Example

    A sample of it t may be comprised of the following items:

    Account Name-a listing of all the names of accounts in the general ledger

    Debit Balance-the total of all debits in each account

    Credit Balance-the total of all credits in each account

    How to Use and Analyze a Trial Balance

    In this sheet, the total of all the debit balances must be equal to the total of all credit balances. So, deviations will point out the presence of some kind of mistake that one should research and fix accordingly.

    Preparation of Trial Balance in Xero

    Xero, being one of the leading cloud-based accounting packages, has made the preparation of a trial balance easier due to its friendly interface. Follow these sequential steps;

    Accessing Xero: On opening the dashboard, click on the organization you need/want.

    Reports: Click on the main menu and select “Reports,” followed by “Trial Balance.”

    Set Date Range: Select a date range for which you want to perform a trial balance.

    View Report: Xero will provide you with the trail balance having all the accounts with their respective debit and credit balances.

    Export/Print: You are able to export the trial balance into Excel or PDF and even print it out for your records.

    How to Use Xero Efficiently

    • Update and reconcile your account on a regular basis to make your data appropriate and accurate.
    • Xero facilitates excellent searching and filtering, hence you will get any transaction or account you want in an instant.
    • Error-checking capabilities within Xero can also be put to use in order to spot inconsistencies early enough.

    Common Mistakes Made While Preparing Trial Balance

    Preparation of a TrialBalance is easy; however, there are certain mistakes that you can encounter.

    Missing Entries: Missing balance is one of the most common reasons your TrialBalances may not be correct.

    Duplicate Entries: The similar transaction, upon recording twice, distorts the balance.

    Transposition Errors: Reversal of digits while typing amounts may lead to a discrepancy.

    How FastLane HR Can Help

    Mastery of the trial balance is crucial for the validity of your financial records. Understanding what it is, what composes it, and how to do one will ensure you are always on target with your accounting.

    Xero efficiently manages your TrialBalance by reducing the risk of errors further and enhancing the accuracy of your financial data. FastLane HR provides comprehensive accounting and bookkeeping services, right from trial balance maintenance through the advanced features of Xero. Moreover, our professionals ensure that your books are accurate and compliant so you to pay more attention to business development.

    Please do not hesitate to call us to find out how we can help with your accounting requirements!