Trial balance: What it is, how to prepare one and why it matters

Published Wednesday 21 January 2026

Table of contents

• What is a trial balance?
• Types of trial balances
• The role of trial balances in financial statements
• Common trial balance errors
• The importance of trial balances for small businesses
• FAQs on trial balances

Key takeaways

• Prepare three distinct trial balances throughout your accounting cycle: an unadjusted trial balance to capture raw transaction data, an adjusted trial balance after making corrections for accruals and deferrals, and a post-closing trial balance to verify your books are ready for the next period.
• Recognize that a balanced trial balance only confirms mathematical accuracy where debits equal credits, but you must still review for missing transactions, transcription errors, and misclassified accounts that won't show up in the totals.
• Use trial balances as the foundation for preparing all financial statements including balance sheets and income statements, ensuring your books are mathematically correct before creating formal reports for tax compliance or audits.
• Implement accounting software to automate trial balance preparation and reduce manual errors, giving you real-time access to accurate financial data and eliminating common transcription mistakes.

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 before you prepare financial statements.

This report acts as a safety check for your books. It helps you catch errors early and gives you confidence that your financial data is accurate before tax time or audits, especially since a corporation must file its income tax return within six months of its fiscal year-end.

Components of a trial balance

The trial balance has a simple three-column layout:

• One column for the names of all the ledger accounts from your chart of accounts, on the left side of the report
• One column for debit balances
• A third column for credit balances

Here's how to organize your trial balance:

• Account names: List all active accounts from your chart of accounts
• Debit balances: Enter assets and expense account balances
• Credit balances: Enter liabilities, equity, and income account balances

The totals of the debit and credit columns should match.

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. Enter all debit balances from the general ledger in the “Debit” column and all credit balances in the “Credit” column. As you can see, the debit and credit columns total the same amount.

Types of trial balances

Three types of trial balances help you manage different stages of your accounting cycle. Each serves a specific purpose in keeping your books accurate:

• Unadjusted trial balance: Shows raw data before any corrections
• Adjusted trial balance: Includes corrections and is used for financial statements
• Post-closing trial balance: Verifies your books are ready for the next period

Unadjusted trial balance

An unadjusted trial balance captures your raw transaction data before any corrections. This is your starting point for closing your books each period.

You'll then make adjustments for:

• Accruals: Unpaid bills or earned but uncollected income. For most businesses in Canada, this is a requirement, as they generally must report business income using the accrual method of accounting.
• Deferrals: Income or expenses that belong to different periods
• Depreciation: Spreading asset costs over multiple years

These adjustments give you a more accurate picture of your financial position.

Adjusted trial balance

After preparing your adjusted entries, you (or your accountant) can complete an adjusted trial balance.

You prepare an adjusted trial balance after the unadjusted trial balance but before any other 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

You only prepare your post-closing trial balance after you've finalized all your financial statements and closed any temporary accounts (like revenue, expenses, and dividends accounts). The balances of these temporary accounts move into your business's retained earnings as part of the closing process.

You then do your post-closing trial balance to verify that all debit and credit balances are equal, and to prepare your general ledger for the next accounting period. By doing this, you're ensuring a clear separation between old and new accounting periods.

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 you create reports.

Your accountant uses trial balances to prepare balance sheets, income statements, and other financial reports. Auditors also rely on them to verify your accounting accuracy.

Your advisor checks that the debit and credit column totals of your business's general ledger accounts match; if they don't, a missing debit or credit entry, or an error in copying over from the general ledger account may be the cause.

Once your bookkeeper or accountant has corrected any mistakes, they can produce the adjusted trial balance and use it to prepare your other financial statements.

Even if the totals match, you may still have issues such as missing transactions or incorrect account classifications. Here's more information on International Financial Reporting Standards (IFRS) in Canada.

Common trial balance errors

Common trial balance errors can create serious problems for your business. Watch out for these three main types:

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

Even small mistakes can distort your financial statements and make it harder to see how your business is really doing. Accurate records help you make confident decisions based on reliable data.

How to correct trial balance errors

Correcting trial balance errors is straightforward when you follow these steps:

• Double-check your numbers: Review all amounts carefully and have someone else verify your work
• Verify source data: Confirm your ledger figures are accurate before entering them
• Use accounting software: Tools like Xero prevent data entry errors and automate calculations

The importance of trial balances for small businesses

Trial balances give you confidence in your financial data and help you make better business decisions. They ensure your reports are accurate for tax compliance and investor meetings.

Cloud-based accounting software automates trial balance preparation and reduces manual errors. Xero can streamline your financial reporting and give you real-time insights into your business performance. Try Xero for free today.

FAQs on trial balances

Here are answers to common questions about trial balances.

What are the three rules of trial balances?

There are three fundamental rules that ensure trial balances are correct:

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

What is the objective of the trial balance?

A trial balance verifies that your debits equal your credits and catches mathematical errors before you prepare financial statements. When totals match, your books are likely error-free. When they don't match, you know there are mistakes to fix.

What is a trial balance vs a balance sheet?

Both a trial balance and a balance sheet show important financial information about a business, but are used for different purposes and differ in scope.

A trial balance is a bookkeeping report that simply lists the balances from the general ledger at a specific point in time. A trial balance's purpose is to reveal any mathematical errors in a business's double-entry accounting system, and is the first step to creating a balance sheet.

A balance sheet is a statement summarizing a business's entire financial position at a point in time. It includes an overview of the business's value in terms of its assets, liabilities, and owner's equity.

How do you prepare the trial balance?

When preparing your first trial balance:

1. List all accounts: Extract account balances from your general ledger
2. Organize by type: Put debit balances in the left column, credit balances in the right column
3. Calculate totals: Add up each column to verify they match
4. Check for errors: If totals don't match, review your ledger entries for mistakes

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

A trial balance is less formal than other financial documents, such as a balance sheet, so you can prepare one as often as you need to keep track of your business finances. Accounting software like Xero can automate the process for you so you can avoid clerical mistakes and effortlessly produce regular trial balances.