Trial balance: what it is, types, and how to prepare one

Published Thursday 5 February 2026

Table of contents

• What is a trial balance?
• Why trial balances matter for your business
• Types of trial balances
• How to prepare a trial balance
• Trial balance vs balance sheet
• Common trial balance errors
• The role of trial balances in financial statements
• Streamline your trial balance preparation with Xero
• FAQs on trial balances

Key takeaways

• Prepare trial balances regularly at the end of each accounting period to catch mathematical errors early and ensure your debit and credit totals match before creating financial statements.
• Use accounting software like Xero to generate trial balances automatically, which saves time and reduces the risk of manual calculation errors that can lead to inaccurate financial reporting.
• Recognise that a balanced trial balance doesn't guarantee complete accuracy, as it won't detect omitted transactions, duplicate entries, or transactions recorded in the wrong accounts.
• Follow the three-step progression from unadjusted trial balance (initial data) to adjusted trial balance (with corrections) to post-closing trial balance (after closing temporary accounts) for comprehensive financial accuracy.

What is a trial balance?

A trial balance is a financial report showing the closing balances of all accounts in the general ledger at a specific point in time. It tests your books for fundamental errors before you prepare financial statements or complete a financial audit.

Many businesses create a trial balance as the first step in closing their books at the end of an accounting period.

Components of a trial balance

A trial balance has a simple three-column layout:

• account names: lists all ledger accounts from your chart of accounts on the left side
• debit balances: records assets and expense account balances in the middle column
• credit balances: records liabilities, capital, and income in the right column

You can omit accounts you haven't used during the period.

Key rule: The totals of the debit and credit columns must match. If they don't, there's likely an error in your bookkeeping.

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.

As explained above, 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 trial balances matter for your business

A trial balance is more than just a list of numbers. It's a key checkpoint that helps keep your business's financial statements accurate. With a balanced report, you'll have more confidence that your numbers reflect your business's financial health, so you can meet compliance requirements and make better-informed decisions.

The three main purposes of a trial balance

A trial balance serves three primary functions in the accounting cycle:

• checks for mathematical errors: its main job is to confirm that the total of all debit balances in the general ledger equals the total of all credit balances. If they don't match, it signals an error in your bookkeeping that needs to be found and fixed.
• acts as a starting point for financial statements: once the trial balance is confirmed to be accurate, it provides the raw data needed to prepare key financial reports like the balance sheet and income statement.
• helps with internal audits: it provides a concise summary of all account balances, making it easier for you or your accountant to review financial activity and spot potential issues before they become bigger problems.

When to prepare a trial balance

Unlike formal financial statements, you can prepare a trial balance as often as you need to. Most businesses run one at the end of each accounting period, such as monthly, quarterly, or annually, as part of the closing process. Running it regularly helps you maintain accurate books and catch errors early.

Types of trial balances

There are three types of trial balances, each following the same format but appearing at different stages of the accounting process:

• unadjusted trial balance: captures initial data from your general ledger to check for obvious errors and identify entries needing adjustment
• adjusted trial balance: includes corrected entries and serves as the foundation for preparing your financial statements
• post-closing trial balance: verifies that all temporary accounts are closed and your ledger is ready for the next accounting period

Here's more detail on each type.

Unadjusted trial balance

An unadjusted trial balance captures all initial data from your general ledger and records day-to-day transactions before any adjustments.

You or your accountant then reviews this trial balance and makes necessary adjustments, such as:

• accruals: adding unpaid bills
• deferrals: recognising income only when earned
• depreciation: spreading asset costs over several years

These adjustments give you a clearer view of your business's financial position.

Adjusted trial balance

An adjusted trial balance summarises the final balances in all accounts after you've made necessary adjustments. You use it to prepare your financial reports, including your income statement and balance sheet.

Post-closing trial balance

A post-closing trial balance verifies that all debit and credit balances are equal after you've closed temporary accounts. You prepare it after finalising your financial statements.

During the closing process, balances from temporary accounts (revenue, expenses, and dividends) move into retained earnings. The post-closing trial balance confirms your general ledger is ready for the next accounting period.

How to prepare a trial balance

Preparing a trial balance involves a few straightforward steps. It's a process of listing all your general ledger accounts and their final balances to ensure your debits and credits match.

Step-by-step preparation process

Follow these steps to create a trial balance:

1. List all general ledger accounts: start by listing every account from your chart of accounts that has a balance. This includes asset, liability, equity, income, and expense accounts.
2. Determine each account's balance: for each account, calculate the final balance at the end of the accounting period.
3. Place balances in debit or credit columns: create a three-column worksheet. In the first column, write the account names. In the second and third columns, place each account's final balance in either the debit or credit column. Assets and expenses have debit balances, while liabilities, equity, and income have credit balances.
4. Total the debit and credit columns: sum the figures in the debit column and do the same for the credit column.
5. Check for equality: the final totals of the debit and credit columns must be equal. If they are, your books are in balance. If not, you'll need to investigate and correct the errors.

Using accounting software for trial balances

Manually preparing a trial balance can be time-consuming and prone to errors. Modern accounting software automates this process for you. With tools like Xero, you can generate a trial balance report with just a few clicks, saving you time and reducing the risk of clerical mistakes. The software automatically pulls the balances from your general ledger, ensuring accuracy and giving you an instant snapshot of your financial standing.

Trial balance vs balance sheet

Both a trial balance and a balance sheet show important financial information, but they serve different purposes and differ in scope. A trial balance is an internal bookkeeping worksheet used to check if debits equal credits, while a balance sheet is a formal financial statement for external stakeholders.

Key differences explained

Here's a quick breakdown of the main differences:

• purpose: a trial balance is used internally to verify the mathematical accuracy of your books. A balance sheet is a formal report that presents the company's financial position to external parties like investors and lenders.
• structure: a trial balance is a simple list of all ledger accounts and their debit or credit balances. A balance sheet follows the accounting equation (Assets = Liabilities + Equity) and organises accounts into these specific categories.
• audience: the trial balance is primarily for you, your bookkeeper, or your accountant. The balance sheet is for a wider audience, including investors, creditors, and regulatory bodies.

When to use each report

Use a trial balance during the accounting cycle to ensure your ledger is balanced before you create formal reports. It's a preliminary step. Use a balance sheet at the end of an accounting period to provide a definitive snapshot of your company's financial health. It's one of the final outputs of the accounting process.

Common trial balance errors

Watch out for these common mistakes when preparing your trial balance:

• transcription errors: data entry mistakes like mistyping $500 as $5,000
• omission errors: leaving transactions out of the accounts entirely
• misclassification errors: recording transactions under the wrong account headings

Even small errors can alter your financial statements and lead to business decisions based on incorrect information; historically, poor accounting practices have led to catastrophic outcomes, with thrift insolvency costs that exceeded $100 billion.

How to correct trial balance errors

Simple mistakes are easy to fix. Follow these steps:

1. recheck your trial balance: review your numbers thoroughly, take a break to return with fresh eyes, and ask someone else to check for typos
2. verify your ledger: confirm your ledger figures are correct before inputting them, and re-verify any figures that seem unreliable
3. use accounting software: tools like Xero prevent mistyped entries and speed up calculations, giving you more time to verify accuracy

Errors a trial balance won't catch

Even if your trial balance totals match, your books might still contain errors. A balanced report won't detect:

• omitted transactions: if a transaction was never recorded, it won't appear in the ledger, and the trial balance will still balance. For instance, Canada's government once failed to account for over $30 billion in unrecorded employee pension liabilities, an omission that a trial balance would not detect.
• incorrectly classified transactions: posting a debit or credit to the wrong account won't cause an imbalance; for example, Canada's government once had a $4.5 billion deficit in its unemployment fund that was incorrectly recorded as an asset on its books.
• duplicate transactions: if the same transaction is entered twice, both debits and credits will increase by the same amount, and the trial balance will remain balanced.

The role of trial balances in financial statements

Trial balances serve as the foundation for financial statements. Accountants use them to prepare balance sheets, income statements, and other reports. They're also essential documents for auditors.

Your bookkeeper or accountant checks that debit and credit totals match. If they don't, there may be a missing entry or an error in copying figures from the general ledger.

Once any mistakes are corrected, the adjusted trial balance can be used to prepare your financial statements. Keep in mind that matching totals don't guarantee accuracy. Errors like missing transactions or incorrect account classifications can still exist.

Streamline your trial balance preparation with Xero

Trial balances help keep your financial statements accurate, giving you confidence that your numbers reflect your business's true financial health. This makes it easier to meet compliance requirements and make informed decisions.

Xero's accounting software streamlines your accounting practices so you can record transactions, prepare trial balances, and produce accurate financial reports without the manual effort. Get one month free and see how simple financial management can be.

FAQs on trial balances

Still have questions about trial balances? Here are answers to common concerns.

What are the three rules of trial balances?

• total debits must equal total credits: this confirms your double-entry bookkeeping is mathematically accurate
• use the correct chart of accounts: record each transaction under the appropriate account category
• enter data accurately: verify figures match your source documents to prevent transcription errors

What is the objective of the trial balance?

The objective of a trial balance is to verify that your debits equal your credits, uncovering mathematical errors in your bookkeeping. It also provides a foundation for preparing accurate financial statements.

Can a trial balance have unequal totals?

No, a correctly prepared trial balance cannot have unequal totals. If the debit and credit columns do not match, it indicates one or more errors in the accounting records, such as a data entry mistake or a miscalculation, which must be located and corrected.

Do I need accounting software to prepare a trial balance?

While you can prepare a trial balance manually using spreadsheets, it's not recommended. Accounting software like Xero automates the process, which significantly reduces the risk of human error, saves time, and ensures your reports are always based on real-time data.

How long does it take to prepare a trial balance?

If you use accounting software, generating a trial balance takes only a few seconds. If you do it manually, the time required can range from under an hour to several hours, depending on the number of accounts and transactions your business has.