The trial balance, explained and actually useful.

A trial balance looks like a dull list of numbers, but it's one of the best review tools in bookkeeping. With the trial balance explained properly, you can glance at a single page and spot most of the problems in your books before your accountant does.

This post follows general ledger explained on our Bookkeeping Basics learning path. The general ledger shows every transaction by account; the trial balance shows just the closing balance of each one.

1The trial balance explained

A trial balance is a report listing every account in your ledger with its balance as of a specific date. Accounts with debit balances go in the debit column, accounts with credit balances in the credit column. Because every entry in a double entry system has equal debits and credits, the two columns must add up to the same total.

It usually lists accounts in the order of your chart of accounts: assets, liabilities, equity, revenue, then expenses.

Before software, bookkeepers posted every entry to the ledger by hand, and the trial balance was the moment of truth: if the columns didn't match, something had been copied wrong, and the hunt began. Today the software keeps the columns equal automatically, so the trial balance has become something more useful: a one-page summary of the whole business that you can scan for anything that doesn't make sense. Think of it as the table of contents for your books.

2A trial balance example

Say you're an incorporated consultant in Edmonton with a December 31 year-end. Here's your trial balance before any year-end adjustments:

It balances. Revenue of $96,000 minus expenses of $81,400 gives a profit of $14,600 before adjustments. But balancing is only the start.

From trial balance to financial statements

Every line on the trial balance belongs to either the balance sheet or the profit and loss. Sort them and you can build both statements by hand:

Liabilities plus equity is $5,490 + $21,510 = $27,000, exactly equal to assets. Notice how the year's profit, which comes from the revenue and expense lines, is what ties the two statements together. That's the accounting equation from our double entry guide showing up in real numbers.

3How to review a trial balance, line by line

Go down the list and ask three questions of every balance: is it on the side I'd expect, is the size reasonable, and can I prove it?

• Chequing $18,400: does it match the December 31 bank statement after reconciling?
• Accounts receivable $6,300: does the aged receivables report show the same total? Is any of it old enough to be doubtful?
• Credit card $1,850: does it match the December statement?
• GST/HST Payable $1,640: does it equal what you'll report, or still owe, for the period?
• Shareholder loan $2,000 credit: the company owes you $2,000. If it were a debit, you'd owe the company, which needs attention.
• Meals $1,200: are any personal? Remember only 50% is generally deductible, which your accountant handles on the return.
• Opening retained earnings: does it match the closing figure on last year's financial statements?

Making a correction

Say your review finds a $450 family dinner coded to meals and entertainment. In a corporation, a personal cost paid by the company usually goes to the shareholder loan, reducing what the company owes you:

After it, the shareholder loan drops to $1,550 credit, meals drop to $750, and the trial balance still balances at $109,150 on each side. Profit rises to $15,050.

4Trial balance errors it can and can't catch

Accounting software prevents the first two, which means every error left is the kind a trial balance can't flag on its own. That's why the line-by-line review matters more than the totals.

The divide-by-nine trick

If you're working by hand or in a spreadsheet and the totals are out, check whether the difference divides evenly by 9. If it does, you may have a transposition: two digits swapped. Write $1,260 as $1,620 and the difference is $360, which is 9 × 40. It's not proof, but it tells you where to look first.

Unadjusted vs adjusted trial balance

The trial balance above is unadjusted. At year-end, adjusting entries bring the books up to date: amortization, accrued expenses, prepaid amounts, unbilled revenue and corrections like the dinner above. After those, you have the adjusted trial balance, and the financial statements come straight from it.

For a corporation, your accountant maps each line to a GIFI code for the T2 return. For a sole proprietor, the revenue and expense lines feed the T2125. Tax adjustments, like adding back half of meals or swapping book amortization for CCA, happen on the return itself, not in your books.

5The trial balance in QuickBooks Online

• Run it: open Reports and search for Trial Balance. Set the date to your period end, such as December 31.
• Drill in: click any balance to see the transactions behind it.
• Compare periods: run it for this year-end and last, side by side, to spot accounts that moved more than they should have.
• Watch for these: Opening Balance Equity, Uncategorized Income or Expense, Undeposited Funds and Ask My Accountant should normally be zero or close to it by year-end.

A five-minute monthly review

You don't need to wait for year-end. Running the trial balance after each month is reconciled, and spending five minutes on it, catches most problems while they're still fresh and easy to fix:

If something looks off, click into it right away. A problem found in March takes minutes to fix; the same problem found the following February can take hours, because nobody remembers the transaction.

6Common trial balance mistakes

• Assuming balanced means done. In software it always balances. Review the lines.
• Running it on the wrong date. A trial balance is a snapshot. December 31 and January 3 can look very different.
• Ignoring wrong-side balances. A credit balance in an expense account or a debit balance in GST/HST Payable that you didn't expect deserves a look.
• Opening retained earnings that don't match last year. It usually means someone changed a closed year.
• Sending it unreconciled. Reconcile bank and card accounts before you hand the trial balance to anyone.

Next on the learning path: bookkeeping vs accounting, which explains where your bookkeeper's trial balance ends and your accountant's work begins.

We review trial balances monthly for clients across Edmonton, St. Albert, Sherwood Park and Spruce Grove, so year-end has no surprises. If yours is full of question marks, catch-up bookkeeping can sort it out, or book a short call to talk it through.

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This article is general information for Alberta businesses and isn't tax or legal advice. Rules and thresholds change, so confirm your situation with your accountant or CRA.