Trial balance: Definition, purpose, and example

According to a recent QuickBooks survey, 71% of small business owners use accounting software or apps to manage their finances and generate financial reports. Tools like these help reduce accounting errors, but behind every accurate report is one core concept: the trial balance. This financial statement shows the closing balance of all accounts in your general ledger to help verify that they're all in sync.

In this guide, we’ll explain what a trial balance is, how it works, the different types, and what an example looks like.

Jump to:

• What is a trial balance?
• How a trial balance works
• Types of trial balance
• When to use trial balances
• Pros and cons of a trial balance
• Example of a trial balance
• Streamline your accounting and save time

What is a trial balance?

A trial balance is an accounting report you prepare at the end of an accounting period to ensure the general accounting ledger is correct and the total debits match the total credits. 

The biggest goal of a trial balance is to find accounting errors and transposition errors, like switching digits. By highlighting these mistakes, the trial balance acts as an accuracy check for a business, mitigating the risk of inaccuracies before you generate final financial statements.

Trial balance vs. balance sheet

A trial balance is an internal report that itemizes the closing balance of each of your accounting accounts. It acts as an auditing tool, while a balance sheet is a formal financial statement. The trial balance shows all of your accounting accounts, but a balance sheet may consolidate many of these accounts. This is why it's important to learn to read your balance sheet.

For example, all of your bank accounts, such as your operating and payroll checking accounts and savings accounts, will appear in the trial balance. However, your balance sheet will likely group all of these accounts under “cash and cash equivalents.”

How a trial balance works

A trial balance is a snapshot of all your general ledger accounts, organized to ensure your books are balanced. Businesses usually prepare it at the end of an accounting period using three columns: 

• Account names 
• Debit balances
• Credit balances 

In general, debit balances appear in asset and expense accounts, while credit balances show up in liability, equity, and revenue accounts. The trial balance totals these columns to confirm that your debits equal your credits.

This process is a key step in the accounting cycle. After recording and posting all transactions to the general ledger, the trial balance helps verify that entries are mathematically sound before you move on to adjusting entries or financial reports. Most accounting software can generate this report automatically, saving you time and reducing the risk of manual errors.

What are the three main rules of trial balance?

To keep your books balanced, a trial balance follows three key accounting rules:

1. Total debits must equal total credits: Every transaction affects at least two accounts—one debit and one credit. For your trial balance to be accurate, the total amount entered as debits must match the total entered as credits. If they don’t, it’s a sign something’s off in your books.
2. Assets and expenses are recorded as debits: When you spend money or gain something of value—like equipment or utilities—it’s recorded as a debit. Debits increase asset and expense accounts, which typically appear on the left side of your trial balance.
3. Liabilities, equity, and income are recorded as credits: Credits increase accounts like revenue, loans, or owner’s equity. These represent what your business owes or earns, and they’re usually listed on the right side of your trial balance.

Each account with a balance in your accounting system, such as accounts receivable and accounts payable, appears in the trial balance with its respective balance—debits on the left and credits on the right. 

Types of trial balance

Trial balances come in three key types, with each serving a purpose to help create accurate financial statements. While an unadjusted trial balance may uncover mathematical errors, the following types help eliminate accounting errors and ensure accurate financial statements:

• Unadjusted trial balance: This is the Initial trial balance directly from ledger accounts. It helps detect errors and omissions before making any account adjustments.
• Adjusted trial balance: This happens after incorporating adjusting entries to reflect changes for accrued and deferred items. It corrects misstatements found in the unadjusted version. 
• Post-closing trial balance: This comes after closing entries and zeroes out temporary accounts like revenues and expenses.

Most accounting software allows you to easily generate an adjusted trial balance or a post-closing trial balance after making the relevant entries.

When to use trial balances

A trial balance plays a key role in the accounting cycle by verifying the accuracy of your ledger before generating financial statements. It helps ensure your books are in balance, flagging potential issues early in the process. 

Most accounting software will let you generate a trial balance at any point in time to allow you to assess the current state of your accounts and spot discrepancies before they become larger issues.

Using a trial balance at the end of an accounting period 

At the close of each month, quarter, or year, a trial balance helps confirm that the business has correctly recorded all transactions in the accounting ledger. This step—usually stage four of the accounting cycle—ensures the books are balanced before adjusting entries are made. Regular review at this stage can help prevent costly mistakes down the line.

Running a trial balance after adjusting entries 

Adjusting entries account for items like accruals, deferrals, and depreciation, aligning financial data with the correct period. Running a trial balance after these entries—typically after step six—helps verify that your books still balance and that you recorded updates accurately. 

Most accounting software can generate this adjusted trial balance automatically, saving time and reducing errors.

Generating a trial balance after closing entries

Once temporary accounts like revenue and expenses are closed and transferred to retained earnings, a post-closing trial balance confirms that only permanent accounts remain. 

This is part eight of the accounting cycle and ensures your books are ready to start the next accounting period. Automated accounting software simplifies this by updating account balances and generating post-closing trial balances on demand.

How to use trial balances for ongoing accuracy

You don’t have to wait until the end of the period to run a trial balance. Many businesses review trial balances weekly or monthly to proactively catch issues and maintain accurate records. Most financial reporting software platforms offer real-time access to trial balances, allowing you to continuously monitor financial health.

Pros and cons of a trial balance

The trial balance is a mathematical proof test to make sure that debits and credits are equal. 

The biggest benefits of trial balances are that they:  

• Make reviewing general ledger account balances easier 
• Ensure debits and credits match 
• Help with finding discrepancies before creating financial statements  

The trial balance provides a snapshot of all ledger accounts within a given accounting period, which helps business owners and accounting teams in reviewing accuracy. 

However, trial balances do have some shortcomings, as they: 

• May exclude necessary accounts 
• Miscoded transactions 
• Fail to detect some accounting errors 

Note that while a trial balance is helpful in the double-entry system as an initial check of account balances, it won’t catch every accounting error.

It might miss transactions omitted entirely from the books. There's also a chance it'll fail to flag entries incorrectly coded to the wrong accounts, which can ultimately lead to inaccurate financial statements.

Example of a trial balance

A trial balance contains all ledger accounts a company uses. The typical trial balance format includes a column for the account name, one for debit balances, and one for credit balances. The trial balance example below gives you a real-world view of how accounts appear in the report:

Notice the middle column lists the balance of the accounts with a debit balance, while the right column has balances for credits. The totals for the debits and credits should match. A balanced trial balance hints at no apparent accounting error, whereas discrepancies imply an error somewhere in the account balances.

Streamline your accounting and save time

A trial balance is an essential checkpoint in your accounting system. It helps you spot errors early and makes sure your books are balanced before you move on to financial reporting.

But you don’t have to do it all manually. Accounting software like QuickBooks Online can handle the heavy lifting—posting transactions, generating trial balances, and keeping your records accurate behind the scenes. That means less time on data entry and more time focused on growing your business.

*Terms and conditions, features, support, pricing, and service options subject to change without notice.