The Trial Balance

After posting all transactions from an accounting period, accountants prepare a trial balance to verify that the total of all accounts with debit balances equals the total of all accounts with credit balances. The trial balance lists every open general ledger account by account number and provides separate debit and credit columns for entering account balances. The Greener Landscape Group's trial balance for April 30,20X2 appears below.

The Greener Landscape Group Trial Balance April 30,20X2

Account

Debit

Credit

100

Cash

$ 6,355

110

Accounts Receivable

150

140

Supplies

50

145

Prepaid Insurance

1,200

150

Equipment

3,000

155

Vehicles

15,000

200

Accounts Payable

$ 50

250

Unearned Revenue

270

280

Notes Payable

10,000

300

J. Green, Capital

15,000

350

J. Green, Drawing

50

400

Lawn Cutting Revenue

750

500

Wages Expense

200

510

Gas Expense

30

520

Advertising Expense

35

$26,070

$26,070

Although dollar signs are not used in journals or ledger accounts, trial balances generally include dollar signs next to the first figure in each column and next to each column's total. Trial balances usually include accounts that had activity during the accounting period but have a zero balance at the end of the period.

An error has occurred when total debits on a trial balance do not equal total credits. There are standard techniques for uncovering some of the errors that cause unequal trial balances. After double‐checking each column's total to make sure the problem is not simply an addition error on the trial balance, find the difference between the debit and credit balance totals. If the number 2 divides evenly into this difference, look for an account balance that equals half the difference and that incorrectly appears in the column with the larger total. If the Greener Landscape Group's $50 accounts payable balance were mistakenly put in the debit column, for example, total debits would be $100 greater than total credits on the trial balance.

If the number 9 divides evenly into the difference between the debit and credit balance totals, look for a transposition error in one of the account balances. For example, suppose the cash account's balance of $6,355 were incorrectly entered on the trial balance as $6,535. This would cause total debits to be $180 greater than total credits on the trial balance, an amount evenly divisible by 9 ($180 ÷ 9 = $20). Incidentally, the number of digits in the resulting quotient—the quotient 20 has two digits–always indicates that the transposition error begins this number of digits from the right side of an account balance. Also, the value of the leftmost digit in the quotient— 2 in this case— always equals the difference between the two transposed numbers. Test this by transposing any two adjacent numbers in the trial balance and performing the calculations yourself.

If the difference between the debit and credit balance totals is not divisible by 2 or 9, look for a ledger account with a balance that equals the difference and is missing from the trial balance. Of course, two or more errors can combine to render these techniques ineffective, and other types of mistakes frequently occur. If the error is not apparent, return to the ledger and recalculate each account's balance. If the error remains, return to the journal and verify that each transaction is posted correctly.

Some errors do not cause the trial balance's column totals to disagree. For example, the columns in a trial balance agree when transactions are not journalized or when journal entries are not posted to the general ledger. Similarly, recording transactions in the wrong accounts does not lead to unequal trial balances. Another common error a trial balance does not catch happens when a single transaction is posted twice. The trial balance is a useful tool, but every transaction must be carefully analyzed, journalized, and posted to ensure the reliability and usefulness of accounting records.