How to Prepare a Trial Balance: Step-by-Step Process With Worked Example

A trial balance is a worksheet that lists every general ledger account and its ending balance in either the debit or credit column. The purpose is simple: verify that total debits equal total credits. If they do not match, there is an error somewhere in your recording or posting process — and you need to find it before preparing financial statements. The process in 5 steps: (1) Complete all journal entries and post them to the general ledger. (2) Calculate the ending balance of every ledger account. (3) List each account on the trial balance — account name, debit balance, or credit balance. (4) Total the debit column and the credit column. (5) Verify they are equal. If equal, proceed to adjusting entries. If not, find and fix the error. The trial balance does NOT prove that all transactions were recorded correctly. It only proves that debits equal credits — you could have debited the wrong account, recorded the wrong amount in both columns equally, or omitted a transaction entirely, and the trial balance would still balance. It catches one-sided errors (posted a debit without a credit), transposition errors (recorded $540 as $450 — the difference is divisible by 9), and slide errors (recorded $5,400 as $540 — the difference is divisible by 9). Snap a photo of any trial balance problem and AccountingIQ walks through each account classification, verifies the debit/credit placement, and identifies the error if the trial balance does not balance.

Let us prepare a trial balance for a small consulting business at January 31. Step 1: List all accounts from the general ledger with their ending balances. Cash: $15,200 (debit balance — assets have debit balances). Accounts Receivable: $8,500 (debit). Office Supplies: $1,200 (debit). Equipment: $25,000 (debit). Accumulated Depreciation: $3,000 (credit — contra-asset). Accounts Payable: $4,400 (credit — liability). Unearned Revenue: $2,000 (credit — liability). Common Stock: $30,000 (credit — equity). Retained Earnings: $5,000 (credit — equity). Service Revenue: $12,500 (credit — revenue). Salaries Expense: $4,800 (debit — expense). Rent Expense: $1,500 (debit — expense). Utilities Expense: $700 (debit — expense). Step 2: Place each balance in the correct column. Debit column: Cash $15,200 + AR $8,500 + Supplies $1,200 + Equipment $25,000 + Salaries $4,800 + Rent $1,500 + Utilities $700 = $56,900. Credit column: Accum. Depreciation $3,000 + AP $4,400 + Unearned Revenue $2,000 + Common Stock $30,000 + Retained Earnings $5,000 + Service Revenue $12,500 = $56,900. Step 3: Total debits ($56,900) = Total credits ($56,900). The trial balance balances. The normal balance rule determines the column: assets and expenses have debit balances (left column). Liabilities, equity, and revenues have credit balances (right column). Contra accounts go opposite — accumulated depreciation is a contra-asset, so it has a credit balance despite being listed with assets. AccountingIQ automates this classification — snap a photo of a list of accounts and balances and it places each in the correct column, totals both sides, and flags any that do not follow normal balance rules.

A trial balance that does not balance means there is a mechanical error in your recording or posting. Here is the systematic approach to finding it. Step 1: Re-add both columns. Simple arithmetic mistakes are the most common cause. Use a calculator, not mental math. Step 2: Calculate the difference. The size and nature of the difference narrows the search. If the difference is divisible by 9: you likely have a transposition error (digits reversed — $540 recorded as $450, difference = $90, which is 9 × 10) or a slide error (decimal shifted — $5,400 recorded as $540, difference = $4,860, which is 9 × 540). Divide the difference by 9 — the result often points to the account where the digits were transposed. If the difference is divisible by 2: you may have placed a balance in the wrong column. An account that should be a $500 debit placed in the credit column creates a $1,000 difference (the $500 is missing from debits AND added to credits). Halve the difference and look for an account with that balance. If the difference equals a specific account balance: you probably omitted an account entirely. Look for a ledger account not listed on the trial balance. Step 3: If still not found, verify each ledger account balance by re-footing (re-adding) the debits and credits in the ledger. Then verify each posting from the journal to the ledger — check that every journal entry was posted to the correct account and on the correct side. Common traps: drawing accounts (Owner's Draws or Dividends) have debit balances even though they reduce equity — students frequently place them in the credit column. Accumulated Depreciation has a credit balance even though it appears on the asset side of the balance sheet. Unearned Revenue has a credit balance — it is a liability, not revenue. AccountingIQ finds trial balance errors automatically — snap a photo of an unbalanced trial balance and it identifies the most likely error source, shows the correction, and rebalances the report.

The accounting cycle uses three trial balances at different stages. Each serves a distinct purpose. Unadjusted Trial Balance: prepared after posting all regular journal entries but BEFORE adjusting entries. This is the starting point — it shows raw account balances that have not been adjusted for accruals, deferrals, depreciation, or other period-end adjustments. You use this to verify mechanical accuracy before making adjustments. If this trial balance does not balance, fix the errors before proceeding — adjusting entries layered on top of errors make the problems harder to find. Adjusted Trial Balance: prepared AFTER all adjusting entries have been posted. This is the trial balance from which you prepare financial statements. It includes: accrued revenues and expenses (earned or incurred but not yet recorded), prepaid expense adjustments (the portion used up), unearned revenue adjustments (the portion earned), depreciation expense, and any other end-of-period adjustments. The adjusted trial balance should balance — if it does not, the adjusting entries contain an error. Post-Closing Trial Balance: prepared AFTER closing entries have been posted. Closing entries zero out all temporary accounts (revenues, expenses, dividends/draws) by transferring their balances to Retained Earnings. The post-closing trial balance should contain ONLY permanent accounts (assets, liabilities, equity) — all with their correct ending balances. If any temporary accounts appear on the post-closing trial balance, the closing entries were incomplete. The workflow: unadjusted TB → make adjusting entries → adjusted TB → prepare financial statements → make closing entries → post-closing TB → the books are ready for the next period. AccountingIQ handles all three trial balance types — snap a photo at any stage and it identifies which type you are working with, classifies the accounts, and walks through the adjustments or closing entries needed to advance to the next stage.