The trial balance is an important part of double entry bookkeeping, with two main purposes: to check that all of the double entry has been entered correctly, and then to transfer the data to the financial statements. To understand how to complete a trial balance and its benefits, it is important to have a good grasp of double entry bookkeeping.
Double entry bookkeeping: step-by-step
- Write up the source documents, such as invoices and payments, into the relevant daybook
- Total the daybook at the end of the period
- Transfer the totals from the daybook into the general ledger and purchase/sales ledger
- Balance off the accounts in the general ledger at the end of the period, like in the table below:
Final step: how to do a trial balance
Finally, transfer the balances into the trial balance, as below:
Once the trial balance has been completed with totals from the accounts on both the debit and credit side, the trial balance should balance. This means the total of debits should equal the total of credits.
If the trial balance balances, then you will know that all of the figures from the accounts have been transferred correctly to the trial balance. It will also show that the accounts were balanced correctly and that, when the figures were transferred from the daybook, they were transferred correctly. Finally, it shows that the daybooks were written up correctly initially.
Once we know that the trial balance is correct, we can then from the trial balance create the financial statements. The main financial statements that can be created from the trial balance are the statement of profit or loss and the statement of financial position.
To gain a detailed understanding of the process of bookkeeping, including how to do a trial balance, enquire about the AAT Certificate in Bookkeeping. To learn more advanced accounting skills, such as how to use the trial balance to create financial statement, take a look at our range of accounting courses.