The TRIAL BALANCE Explained (Full Example!)

We’re going to build ourselves a trial balance and discuss accounting stuff today’s content is about the counting basics and it’s all about balance I’m going to explain what Trial balance means? why it is this important? and show you how to make one for yourself are you ready a trial balance or TB?

Accounting balance report

When abbreviate is is an accounting report showing the closing balances of all general ledger accounts at a point in time back in the days of accounting on paper it was used to check that the debit and credit column totals match each other however since the introduction of accounting software that cheque has become less and less important since it’s now done automatically nowadays it is an internal document that is typically used by accountants to check for errors and assist in the producing of financial statements it is also used by auditors in deciding which accounts to review okay so now we know what a trial balance means but what does it look like it looks like this we have a complete listing of all general ledger accounts running down the page with two columns for the debit and credit totals in the title we need to mention the period end date since we’re looking at a snapshot at a point in time the account names are grouped by their type typically we start off with assets liabilities equity and dividends since this is the typical layout of a balance sheet then we have all of the revenue and expense accounts which make up the income statement.

The account balances going usually line up with the normal balances of the account types which we can using dealer dividends expenses and assets are normally debit accounts so these go on the Left where is liabilities owner’s equity and revenue are normally credit accounts which go on the right the totals of the debit and credit columns should always match each other.If they don’t then you will want to test over your workings for mistakes we are double entry bookkeeping always.

Total Debit and Credit

The total debits and credits are always equa.l However debit and credit totals being equal doesn’t mean our trial balance is error-free. We could have switched the debits and credits in a journal and got them the wrong way round. We could have posted the same journal twice well not even posted it at all we could have posted the journal to the wrong accounts entirely or we could have posted a balanced journal to the correct accounts but the numbers were wrong because we messed up our workings. So by no means does a balance trial balance mean that it’s correct but is certainly a good start example time we’re going to build the trial balance for our window cleaning business it’s been up and running for one month now.

How distinguish debits and credits Entries

So we’re going to need to include all of those transactions from the previous two videos if you missed either of them you might want to hit that pause button now and go check them out to help clarify things to create this trial balance. We’re going to use something called a working trial balance this has a very similar format to the one. I showed you before except this time we aren’t going to split debits and credits in two separate columns instead we are going to identify debits as positive numbers and credits as negative numbers to help us. So that we can differentiate these term easily and between them to start things off.  We want a list of all of the money owed our window cleaning business has then we are going to upload 7 columns to the right hand aspect of it 6 for every of the magazine entries and a seventh to calculate the overall balances in each of the bills underneath the listing of bills. Read also Advice For People Early In Their Career

Debit cash And Credit revenue

Now it’s time for us to enter these journals. I’m going to move through this next section quite so if any of these accounting entries are making sense then check out those previous videos. You’ll be fine first the business owner invests $100 and in return the business issues $100 in stock.We are going to debit cash by $100 and credit owner’s equity by $100 then the business takes out a further $200 loan to fund its activities. We need to debit cash again by $200 and credit loans payable by $200 as well third the business spends thirty dollars in cash on window cleaning equipment. We credit cash by $30 and we debit equipment by $30 next it spends a further fifty dollars on cleaning supplies the payment is made on account. So we debit supplies by $50 and credit accounts payable by $50 after that the business makes one hundred and fifty dollars cleaning windows using half of its supplies in the process.

We debit cash by a hundred and fifty dollars and credit revenue by a hundred and fifty dollars to recognize the revenue. We also credit supplies by $25 and debit cost of sales by $25 as well to account for half of the supplies being used up.

We debit laundry costs by $20.00 and we credit cash by $20.00. Now that we have all of our September journals written out. We can take the totals for each account. Let’s reformat our operating trial balance to reveal our debits and credits in separate columns.

Trial balance

Let’s rename this to trial balance for the period ended 30th of September the total of our accounts with a debit balance is $500 and the total of our accounts where the credit balance is also $500. So here we have our final trial balance for the September accounting period let’s recap what we just learned there the trial balance is an accounting report that shows the closing balances of all GL accounts at a point in time. It is an internal report used by accountants to check for errors and help produce financial statements,the totals of the debit and credit columns must always match each other exactly for it to balance. However balance columns doesn’t mean that the trial balance is error-free.

The TRIAL BALANCE Explained

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