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Trial Balance
A report listing all account balances to verify that total debits equal total credits.
Formula
Total Debit Balances = Total Credit Balances
If they do not match, find and correct the error before proceeding
Definition
What is a Trial Balance?
A Trial Balance lists every account in your general ledger with its current balance. The total of all debit balances should equal the total of all credit balances. If they do not match, there is an error somewhere.
Why Trial Balance Matters
The trial balance is a checkpoint before generating financial statements. Running a trial balance catches data entry errors, missing transactions, or system issues before they corrupt your reports.
For founders closing monthly books, reviewing the trial balance is a sanity check. Large unexpected balances, accounts that should be zero but are not, or a ledger that does not balance all signal problems to investigate.
Using Trial Balance
Most accounting software generates trial balance automatically. The skill is knowing what to look for: unusual balances, accounts that moved unexpectedly, or totals that seem wrong given business activity.
Example
Partial Trial Balance for a SaaS company:
- Cash: $250,000 (Debit)
- Accounts Receivable: $75,000 (Debit)
- Accounts Payable: $30,000 (Credit)
- Deferred Revenue: $100,000 (Credit)
- Subscription Revenue: $400,000 (Credit)
- Salaries Expense: $180,000 (Debit)
- Marketing Expense: $25,000 (Debit)
Total Debits: $530,000
Total Credits: $530,000 ✓
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