A trial balance is a list that shows all the closing balances and totals of every single account in the general ledger.
After the general ledger is closed off, preparing a trial balance will be the first step that you perform before you draft the financial statements. All you need to do is to draw up two columns. One for the debit accounts and one for the credit accounts. From the general ledger, you will take the balances of each account and place them in the appropriate column.
Preparing the trial balance is a very important step because it is at this point where we determine if we made a mistake in our bookkeeping.
Using the closing balances and totals from our general ledger article, this is what the trial balance looks like for Tom's business :
As you can see from above image, all we did was simply copy the balances and totals from the general ledger and paste it in the appropriate column of the trial balance.
The total of the debit column is exactly equal to the total of the credit column. Therefore, we can assume that the books are balanced. We can now proceed to prepare the annual financial statements.
If your trial balance totals are not equal, that means that you need to go back and inspect your general ledger to figure out where you incorrectly recorded a transaction.
