Trial balance: What it is, how it works, and why it matters

Published Tuesday 18 November 2025

Table of contents

• What is a trial balance?
• Why do you need a trial balance?
• How to prepare a trial balance
• Types of trial balances
• Common trial balance errors
• The role of trial balances in financial statements
• The importance of trial balances for small businesses
• ## FAQs on trial balances
• Start using Xero for free

Key takeaways

• Prepare trial balances regularly to catch errors early by ensuring your debit and credit column totals match, which helps you spot mistakes before preparing financial statements and saves time during tax season.

• Utilise the three types of trial balances strategically throughout your accounting process: start with an unadjusted trial balance to capture initial data, create an adjusted trial balance after corrections, and finish with a post-closing trial balance to prepare for the next period.

• Implement systematic error-checking procedures by double-checking transcription accuracy, verifying source data from your general ledger, and using accounting software to prevent common mistakes like mistyped amounts or omitted transactions.

• Recognise that trial balances serve as the essential foundation for creating accurate financial statements, providing clean data for balance sheets and income statements while ensuring your books are audit-ready.

What is a trial balance?

A trial balance is a financial report that lists all account balances from your general ledger at a specific point in time. It ensures your debits equal your credits, helping you spot errors before preparing financial statements.

Components of a trial balance

A trial balance uses a simple three-column format:

• Account names: All ledger accounts from your chart of accounts
• Debit column: Asset and expense account balances
• Credit column: Liability, capital, and income account balances

Make sure the debit and credit column totals match so your books balance.

Trial Balance Example

Here's an example of the trial balance format that shows the closing balances of all accounts in the general ledger at the end of a financial period.

The account names go in the far left column. All debit and credit balances from the general ledger are recorded in the 'Debit' and 'Credit' columns accordingly. As you can see, the debit and credit columns total the same amount.

Why do you need a trial balance?

A trial balance gives you a clear view of your business finances and helps you keep your records accurate and organised. You can use a trial balance to:

• Find errors early: By checking that your debits and credits match, you can catch mistakes early and save time at tax time.
• Get a clear financial snapshot: It provides a summary of all your account balances in one place. This gives you valuable insight into your financial position throughout the year, not just at the end.
• Prepare for financial statements: A balanced trial balance is the first step to creating accurate financial statements like the balance sheet and income statement. It helps you create accurate financial reports.

How to prepare a trial balance

You can use accounting software like Xero to automate this process, but understanding the steps helps you stay in control.

1. List all your general ledger accounts and their balances for the accounting period.
2. Create two columns: one for debits and one for credits.
3. Enter each account's final balance into the correct column. Assets and expenses go in the debit column, while liabilities, equity, and revenue go in the credit column.
4. Add up all the numbers in the debit column to get a total.
5. Do the same for the credit column.
6. Check that the two totals are equal. If they match, your books are balanced. If not, it's time to investigate and find the error.

Types of trial balances

Three types of trial balances help you at different stages of your accounting process:

1. Unadjusted trial balance: Your starting point that captures initial ledger data and reveals obvious errors before adjustments.

2. Adjusted trial balance: Created after making corrections, this version prepares your data for financial statements.

3. Post-closing trial balance: Your final check that ensures accounts are ready for the next accounting period.

Unadjusted trial balance

An unadjusted trial balance captures your initial ledger data before any corrections. It shows your day-to-day transactions as first recorded.

You may need to:

• Accruals: Adding unpaid bills or earned income
• Deferrals: Recognising income only when earned
• Depreciation: Spreading asset costs over time

These adjustments help you see your true financial position.

Adjusted trial balance

Once you make your adjustments, prepare your adjusted trial balance.

Prepare your adjusted trial balance after the unadjusted trial balance and before your financial statements. The adjusted trial balance is a summary of the final balances in all accounts, which you then use to help prepare your financial reports.

Post-closing trial balance

Prepare your post-closing trial balance after you finalise your financial statements and close temporary accounts, such as revenue, expenses and dividends. The balances of these temporary accounts move into your business's retained earnings as part of the closing process.

This step checks that your debits and credits are equal and gets your general ledger ready for the next period.

Common trial balance errors

Common trial balance errors can affect your financial reports:

• Transcription errors: Mistyping amounts (like $500 as $5,000)
• Omission errors: Leaving out transactions completely
• Misclassification errors: Recording transactions in wrong accounts

Accurate trial balances help you make better business decisions.

How to correct trial balance errors

To fix trial balance errors, you can:

• Double-check your work: Review numbers carefully and get someone else to check for typos
• Verify source data: Confirm your ledger figures are correct before transferring them
• Use accounting software: Tools like Xero prevent entry errors and automate calculations

The role of trial balances in financial statements

Trial balances serve as the foundation for your financial statements and audit processes. They verify that your books are mathematically correct before creating formal reports.

Key benefits:

• Error detection: Ensures debit and credit totals match
• Statement preparation: Provides clean data for balance sheets and income statements
• Audit readiness: Gives auditors confidence in your record accuracy

Once you correct any mistakes, you can prepare the adjusted trial balance and use it to create your financial statements.

Matching totals mean your books are balanced, but it's still important to check for missing transactions or incorrect account classifications. Learn more about preparing financial statements.

The importance of trial balances for small businesses

These requirements often apply to large proprietary companies, which are defined as meeting two of three criteria: more than $10 million in revenue, more than $5 million in assets, or more than 50 employees.

Xero accounting software streamlines your accounting practices so you can easily record transactions, regularly prepare trial balances, and produce accurate financial reports.

## FAQs on trial balances

Here are answers to common questions about trial balances.

What are the three rules of trial balances?

Follow these three rules to make sure your trial balance is correct:

1. Total debits must equal total credits
2. Use the right chart of accounts
3. Ensure you enter your data properly

What are the three main purposes of a trial balance?

A trial balance helps you spot errors early, gives you a clear view of your finances, and is the first step in preparing accurate financial statements.

What is the objective of the trial balance?

A trial balance helps you check that your bookkeeping is accurate. When your debits and credits match, your books are balanced and ready for financial statements.

What is a trial balance vs a balance sheet?

A trial balance lists all your general ledger balances at a point in time to check for errors. A balance sheet shows your business’s assets, liabilities and equity, giving you a full picture of your financial position.

A balance sheet summarises your business’s assets, liabilities and equity at a specific point in time.

How do you prepare the trial balance?

To prepare your first trial balance:

1. Extract ledger data: List all account balances from your general ledger

2. Organise by type: Put debit balances in the left column, credit balances in the right

3. Calculate totals: Add up each column

4. Check for balance: If totals match, your books are likely error-free. If not, review your entries for mistakes.

These steps produce an unadjusted trial balance. This is just the first step – you will then prepare your adjusted trial balance, and finally your post-closing trial balance once your financial reports are finalised.

A trial balance is less formal than a balance sheet, so you can prepare one as often as you need. Xero accounting software can automate this process and help you avoid mistakes.

Disclaimer

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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