Trial balance explained: Main types and how you can prepare one for your small business

Published Wednesday 26 November 2025

Table of contents

• What is a trial balance?
• Types of trial balances
• Why trial balances are important
• How to prepare a trial balance
• Common trial balance errors
• FAQs on trial balances

Key takeaways

• Prepare trial balances in three stages to ensure accuracy: start with an unadjusted trial balance to catch initial errors, create an adjusted trial balance after making necessary corrections, and finish with a post-closing trial balance to verify your books are ready for the next accounting period.

• Verify that total debits equal total credits in your trial balance, as this fundamental rule confirms your books are mathematically balanced and helps identify data entry errors, missing transactions, or misclassified accounts before creating financial statements.

• Use trial balances as your foundation for accurate financial reporting by listing all account balances from your general ledger in a three-column format with account names, debit balances, and credit balances at a specific point in time.

• Implement systematic error-checking procedures when trial balances don't balance by reviewing ledger entries for common mistakes like transposition errors, omitted transactions, or incorrect account classifications that can distort your financial statements and business decisions.

What is a trial balance?

A trial balance is a financial report that lists all your account balances from the general ledger at a specific point in time. It’s called a ‘trial’ because you use it to check your books balance before you create financial statements.

This three-column report helps you catch errors early and check that your debits equal your credits.

Components of a trial balance

Trial balance structure uses three simple columns:

• Account names: All ledger accounts from your chart of accounts
• Debit balances: Assets and expense accounts
• Credit balances: Liabilities, capital, and income accounts

Key requirement: The debit and credit column totals must match. If they don’t, check for errors.

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. The debit and credit columns total the same amount.

Types of trial balances

Three types of trial balances serve different purposes in your accounting process:

• Unadjusted trial balance: Tests your initial data for obvious errors
• Adjusted trial balance: Includes corrections needed for accurate financial statements
• Post-closing trial balance: Confirms your ledger is ready for the next period

Each uses the same three-column format but is prepared at a different stage of closing your books.

Unadjusted trial balance

An unadjusted trial balance captures your raw transaction data before any corrections. It's your starting point for identifying what needs adjusting.

Common adjustments include:

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

Adjusting these entries gives you a more accurate view of your financial position.

Adjusted trial balance

After you adjust your entries, prepare 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

Prepare your post-closing trial balance after you finalise your financial statements and close any 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.

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. This keeps your old and new accounting periods separate.

Why trial balances are important

Why trial balances matter for your business

Primary purpose: verify that your books balance before you create financial statements.

Key functions:

• Find mathematical mistakes and missing entries
• Give auditors organised, verified data
• Make sure your balance sheets and reports are accurate

Even if your totals match, check for missing transactions or misclassifications.

How to prepare a trial balance

How to prepare a trial balance in four simple steps:

1. List all account balances from your general ledger
2. Put debit balances (assets, expenses) in the left column and credit balances (liabilities, income, equity) in the right column
3. Add up each column – they should match exactly
4. If totals do not match, review your ledger entries for errors

Common trial balance errors

Common trial balance errors can cause major problems for your business decisions:

• Mistype amounts (for example, $500 as $5,000)
• Leave out transactions
• Record transactions in the wrong accounts

Even small mistakes can distort your financial statements and lead to poor business decisions.

How to correct trial balance errors

How to fix trial balance errors:

• Review numbers carefully and ask someone else to check for typos
• Confirm your ledger figures before you transfer them
• Use Xero accounting software to prevent data entry errors and automate calculations

FAQs on trial balances

Find answers to common questions about trial balances below.

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 helps you find mathematical errors in your bookkeeping practices. If your total debits equal your total credits, your trial balance is balanced and your ledgers are likely correct. If the totals differ, check your ledger entries. Use your trial balance as a foundation for your financial statements.

What is a trial balance vs a balance sheet?

A trial balance and a balance sheet both show your business’s financial information, but they serve different purposes. A trial balance lists the balances from your general ledger at a specific time and helps you find errors in your double-entry accounting system. It is the first step to creating a balance sheet.

A balance sheet shows your business’s financial position at a point in time. It gives an overview of your assets, liabilities and owner’s equity.

How do you prepare the trial balance?

When first preparing a trial balance:

1. Take your general ledger (where all your company's transactions are recorded) and separate out all the transactions within the trial balance format: record the debit balances in the left column, the credit balances in the right column.
2. Sum up each column and check if they're equal. If they are, it suggests there aren't mistakes in your accounting. But if they differ, check your ledger entries for mistakes.

These steps give you an unadjusted trial balance. Next, prepare your adjusted trial balance, then your post-closing trial balance after you finalise your financial reports.

A trial balance is less formal than other financial documents, so you can prepare one as often as you need. Xero accounting software automates the process and helps you avoid mistakes.