What is a Trial Balance?
A trial balance is a list of all the ledger account balances at a particular date, arranged in two columns: a debit column and a credit column. It is prepared after every transaction has been recorded and each account balanced off. Its main purpose is to check the arithmetical accuracy of the double entry: if the rules of debit and credit have been followed, the debit total must equal the credit total.
Key idea
Debit balances are assets, expenses, drawings and purchases; credit balances are liabilities, capital, income and returns outward. Total Debit = Total Credit.
Worked Example
Example
| Item | Debit (RM) | Credit (RM) |
| Cash | 3,000 | |
| Purchases | 12,000 | |
| Sales | 18,000 | |
| Creditors | 5,000 | |
| Capital | 10,000 | |
| Rent | 2,000 | |
| Vehicle | 16,000 | |
| Total | 33,000 | 33,000 |
Both totals agree at RM33,000, so the records are arithmetically balanced.
Errors Revealed and Not Revealed
A trial balance only detects errors that make the two totals unequal, such as posting to one side only, a casting (addition) error, or different amounts on the two accounts.
It does not detect errors that still leave the totals equal, namely:
- Error of omission — a transaction is not recorded at all.
- Error of commission — posted to the wrong account of the same class (e.g. wrong debtor).
- Error of principle — posted to the wrong class of account (an asset treated as an expense).
- Error of original entry — the wrong amount recorded in both accounts.
- Complete reversal — debit and credit swapped.
- Compensating errors — two errors cancel each other out.
Finding a Difference
If the two totals disagree, the accountant rechecks the additions, makes sure each balance is in the correct column, and looks for any balance left out. While the difference is being traced, it may be placed temporarily in a suspense account so that the statements can still be prepared. An accurate trial balance makes it easier to draw up the yearly financial statements in line with MFRS.
Remember
A balanced trial balance does not guarantee there are no errors; it only shows that total debits equal total credits.