{"id":45107,"date":"2022-05-02T16:16:52","date_gmt":"2022-05-02T08:16:52","guid":{"rendered":"https:\/\/www.crazydomains.com\/learn\/?p=44937"},"modified":"2022-05-26T15:38:58","modified_gmt":"2022-05-26T07:38:58","slug":"prepare-trial-balance-for-business","status":"publish","type":"post","link":"https:\/\/www.crazydomains.ae\/learn\/prepare-trial-balance-for-business\/","title":{"rendered":"5 Basic Steps in Preparing a Trial Balance for Your Business\u00a0"},"content":{"rendered":"

If you\u2019re running a business, you need to have an understanding of what a trial balance is. It helps you see where your business stands financially.<\/span>\u00a0<\/span><\/p>\n

The main purpose of a trial balance is\u00a0to ensure that bookkeeping entries are correct. But it\u2019s also worth extending your knowledge to how it paints an overall picture of your business\u2019s accounts.\u00a0<\/span>\u00a0<\/span><\/p>\n

Read on to see an example of a trial balance and how to prepare one for your business.\u00a0<\/span>\u00a0<\/span><\/p>\n

What Is a Trial Balance and Its Importance For a Business<\/span>\u00a0<\/span><\/h2>\n

A trial balance is attributed to the <\/span>double-entry accounting<\/span><\/a> system.\u00a0It\u2019s a recording of all the debit and credit transactions of a business where both data should be equal.<\/span>\u00a0<\/span><\/p>\n

A trial balance is to confirm that all recorded debits and credits are correct. It also serves as a review stage to point out discrepancies and rectify them. It\u2019s usually the first stage of preparing official financial records and statements.<\/span>\u00a0<\/span><\/p>\n

A trial balance is only used internally in a business and doesn\u2019t have to be presented in the closing financial documentation. It\u2019s worth noting that a trial balance differs from a balance sheet, as the latter is something that is distributed outside of the accounting team, and sometimes the business.<\/span>\u00a0<\/span><\/p>\n

Having a healthy financial \u2018bottom line\u2019 in a business is crucial. And the preparation of a trial balance allows you to compare current ledger balances with balances in the past. It also assists with getting financial accounts ready, undertaking comparative analysis, making financial adjustments, and maintaining accounting accuracy. They\u2019re also an important document for auditors.\u00a0<\/span>\u00a0<\/span><\/p>\n

READ: 11 Smart Budgeting Tips for Small Businesses<\/a><\/strong><\/p>\n

How to Prepare a Trial Balance<\/span><\/b><\/h2>\n

Preparing a trial balance varies among businesses – depending on the size and the accounting system\/software used. But here\u2019s a basic run-through of what is included in a simple trial balance.\u00a0\u00a0<\/span>\u00a0<\/span><\/p>\n

Recording in ledger<\/span><\/b><\/h3>\n

\"Recording<\/p>\n

When your business makes a purchase \u2013\u00a0like a computer for a new employee \u2013\u00a0you will record this as a journal entry into your accounting software. Remember, it needs to be a double-entry. So the cost of the computer ($1000) will go into the credit balance as a purchase (- $1000) and then into the debit balance too because it is a new asset for your company (+ $1000). <\/span>\u00a0<\/span><\/p>\n

This is something you or your accountant will complete every time there\u2019s a transaction made by your business.<\/span>\u00a0<\/span><\/p>\n

Debit ledger: <\/span><\/b>assets, expenses and receivables<\/span>\u00a0<\/span><\/p>\n

Credit ledger:<\/span><\/b> liabilities, incomes and payables\u00a0<\/span>\u00a0<\/span><\/p>\n

Balance your accounts<\/span><\/b><\/h3>\n

\"Balancing<\/p>\n

The first step in balancing your accounts is called an unadjusted trial balance sheet, as it will be your initial review before any corrections are made.\u00a0<\/span>\u00a0<\/span><\/p>\n

(Depending on the kind of accounting system you use, a trial balance can easily be carried out in an excel spreadsheet.)\u00a0<\/span>\u00a0<\/span><\/p>\n

What you\u2019re going to do is to import three columns of data into a new sheet:\u00a0<\/span>\u00a0<\/span><\/p>\n

    \n
  1. Name of each transaction<\/span>\u00a0<\/span><\/li>\n
  2. Debits (which could also be called accounts receivable)<\/span><\/li>\n
  3. Credits (which could also be called accounts payable)\u00a0<\/span>\u00a0<\/span><\/li>\n<\/ol>\n

    At the bottom of the debit and credit column, calculate the total sum of all entries.\u00a0<\/span>\u00a0<\/span><\/p>\n

    Aim for zero ending balance<\/span><\/b>\u00a0<\/span><\/h3>\n

    Your end goal is to come up with\u00a0zero finances to balance i.e. both the sums of debit and credit are the same \u2013\u00a0with no surplus or deficit. If this isn\u2019t the case, then somewhere along the way, a business transaction hasn\u2019t been recorded accurately.<\/span>\u00a0<\/span><\/p>\n

    Review imbalance\u00a0<\/span><\/b>\u00a0<\/span><\/h3>\n

    \"Reviewing<\/p>\n

    If your credit and debit columns aren\u2019t the same, then you\u2019ll have to review all your previous transactions to find out where errors may have occurred. There could be a few reasons for this:\u00a0<\/span>\u00a0<\/span><\/p>\n