2020-12-09 02:18:14Finance and AccountingEnglishUnderstand the format and purpose of a trial balance with this guide, and learn about the impact a trial balance can have on your everyday...https://quickbooks.intuit.com/za/resources/za_qrc/uploads/2020/03/business-proposal.jpghttps://quickbooks.intuit.com/za/resources/finance-and-accounting/trial-balance-guide/What is a trial balance? | QuickBooks South Africa

Trial balance guide

2 min read

As a business owner in South Africa you are likely familiar with the trial balance statement that is often prepared towards the end of each accounting period. It is important to understand how they work as modern accounting software typically creates, updates and reports a trial balance automatically, so understanding the details is critical.

A trial balance is used in a double-entry accounting system and is usually prepared after a range of entries have been posted. It reports on all credits and debits and allows you to identify any recording errors.

Utilising a trial balance ensures you can pick up any potential errors, An example of this is, if the summation of all debits doesn’t equal to all credits, you know you have a posting error. It can also help pick up any unusual account balances. For example, a trial balance can reveal a negative balance in an expense account that you need to check in on and rectify.

You can create a trial balance manually or utilise accounting software to create and manage it.

Purpose of a Trial Balance

A trial balance is crucial as it is the first step in the preparation of financial statements. Accountants use it as a basis for, and while, preparing financial statements.

Advantages of a Trial Balance

The main advantage and key purpose of a trial balance is to identify and check against any potential incorrectly posted journal errors. Another trial balance is created after any adjustments and includes the changes and adjustments. This allows you to track and gain insight into any specific account changes.

Another useful feature of a trial balance is the ability to easily identify and see if there is any activity that shouldn’t be posted.

Due to the fact that trial balances show all accounts in a single view, and include all balances, they are incredibly useful when preparing financial statements. Used correctly, trial balances are a powerful tool to ensure that all balances are checked, reasonable and correctly reported on.

Limitations of a Trial Balance

A trial balance is especially useful for businesses but it does have its limitations. This is mainly due to the fact that it doesn’t specifically identify any error. It simply reports on if a total balance is correct or incorrect. 

While it plays a key role in your financial upkeep, it is important to remember that it has limitations and you must try to ensure erroneous journal entries don’t occur.

Trial Balance Example

Trial balances are simple due to the fact they have a very specific structure. The left side shows the list of your accounts, which can be listed by type of account but it isn’t necessary. It is usually listed by assets, liabilities and then revenue.

The right side shows the debit for each account, followed by the credit column. The totals are reported at the bottom of each column, and you’ll have an error if the totals aren’t equal

ABC – Trial Balance as at 31 December 2020

Debit

Credit

Account Title

$

$

Share Capital

25,000

Furniture and Fixtures

5,000

Building

20,000

Creditors

7,000

Debtors

4,000

Cash

3,000

Sales

12,000

Cost of sales

8,000

General and Administrative Expenses

4,000

Total

54,000

54,000

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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