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A trial balance is an accounting list that helps identify imbalances between credits and debits. It’s useful to run it on a regular basis to quickly identify and correct errors. It’s also effective in identifying double entry errors and misregistrations.
Trial balance is an accounting list showing the beginning and ending balances of all accounts included in the set of books. This worksheet format allows you to evaluate whether the total charges for the quoted period are in balance with the total number of credits generated for the same period. When a real trial balance exists, the total credits and total debits will be equal.
Using a trial balance to qualify the current state of accounting records is useful in several ways. One of the most important things that preparing such a balance achieves is the quick and easy identification when debits and credits are not equal. By maintaining this type of balance on a regular basis, this allows you to quickly identify a specific accounting period where an imbalance has occurred and correct it quickly.
For this reason, many companies choose to run a trial balance at least on a monthly basis. Depending on the billing cycle your business uses, it may be beneficial to prepare your balance spreadsheet on a bi-weekly basis. Essentially, the shorter period that is taken into consideration, the easier it is to identify the source of the imbalance and take care of the situation before it becomes a major accounting problem.
In many cases, any difference between receivables and payables that arises in a trial balance is nothing more than a misregistration that occurred during the period under review. In this case, the error can usually be detected with ease and a state of equality restored between debits and credits.
A trial balance is particularly effective in helping to identify a double entry error. Often, the difference between receivables and payables will quickly lead to a specific entry that may have been mistakenly entered into two different columns or accounts within the general set of books.
At the same time, the trial balance may indicate an inequality created by placing a credit or debit in the wrong account. In this case, troubleshooting may take a little longer, as it will involve reviewing every registration for the quoted period and confirming that you registered in the right account and in the correct classification.
Running the trial balance is usually a precursor to preparing other financial documents, such as the Income Statement. By making sure that all debits and credits posted during the period are correct, it is easier to execute reports and other documents based on accounting data.
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