Companies can use a trial balance to keep track of their financial position, and so they may prepare several different types of trial balance throughout the financial year. A trial balance may contain all the major accounting items, including trial balance example assets, liabilities, equity, revenues, expenses, gains, and losses. Before closing accounts and generating financial statements, a WTB aids in mistake detection, allowing for potential repairs or revisions before the reports are finalized.
Advanced AI can even pull financial data straight from your invoices and other documents, and this automation increases your efficiency while boosting your overall accuracy. If you are starting a new business, you will not need a trial balance to open the accounts; instead, you can use the bank opening balance and any transactions to commence the business. However, if totals are equal, it still does not fully guarantee that no errors were made; for example, when a transaction was recorded twice or when it was not recorded at all. In other words, a trial balance shows a summary of how much Cash, Accounts Receivable, Supplies, and all other accounts the company has after the posting process. This is created once the accounting cycle is finished and all journal entries have been posted to the ledger. It is an internal check to ensure all company transactions are recorded accurately and completely.
Trial balance example
The TB specifies the dates defining the accounting period for which the balances are reported. This is used as a first check by auditors to ensure there are no mathematical errors before moving on to more detailed and in-depth investigations, even though it does not give a thorough audit of the accounts. After any required corrections have been made, it becomes an adjusted TB, which serves as the foundation for creating additional financial statements.
If a trial balance is in balance, does this mean that all of the numbers are correct? It is important to go through each step very carefully and recheck your work often to avoid mistakes early on in the process. A bank overdraft in your trial balance is treated as a credit amount. This is because the rate of interest needs to be paid back to the bank in 6-12 months, due to which it is considered a short-term loan. Thus, as it becomes a liability of the business, the recording of this transaction will be in the credit column. So why take the risk of not preparing your financial statements accurately when you just need to follow a few simple steps using the trial balance method?
Does a Business Have to Use a Trial Balance?
The other main use of a trial balance is if you are switching accounting packages or using one for the first time. Reviewing the report using the old and new software will ensure the figures match. Using a manual system, you can make a mistake, and the report is not equal on both sides.
