Preparation Of Trial Balance.Although a trial balance may be prepared at any time, it is usually prepared on the last day
of the accounting period. The steps involved in preparing a trial balance follow.
■■ Step 1. List each account that has a balance, with debit balances in the left column
and credit balances in the right column. Accounts are listed in the following order:
assets, liabilities, owner’s capital, withdrawals, revenues, and expenses.
■■ Step 2. Add each column.
■■ Step 3. Compare the totals of the columns.
Once in a while, a transaction leaves an account with a balance that isn’t “normal.”
For example, when a company overdraws its bank account, its Cash account (an asset)
will show a credit balance instead of a debit balance. The “abnormal” balance should be
copied into the trial balance columns as it stands, as a debit or a credit.
The trial balance proves whether the accounts are in balance. In balance means that the total of all debits recorded equals the total of all credits recorded. But the trial balance does not prove that the transactions were analyzed correctly or recorded in the proper accounts. For example, the trial balance does not show that a debit should have been made in Office Supplies rather than in Office Equipment. And the trial balance does not detect whether transactions have been omitted, because equal debits and credits will have been omitted. Also, if an error of the same amount is made in both a debit and a credit, it will not be evident in the trial balance. The trial balance proves only that the debits and credits in the accounts are in balance.
Finding trial Balance errors
If the debit and credit balances in a trial balance are not equal, look for one or more of
the following errors:
■■ A debit was entered in an account as a credit, or vice versa.
■■ The balance of an account was computed incorrectly.
■■ An error was made in carrying the account balance to the trial balance.
■■ The trial balance was summed incorrectly.
Other than simply adding the columns incorrectly, the two most common mistakes
in preparing a trial balance are:
■■ Recording an account as a credit when it usually carries a debit balance, or vice
versa. This mistake causes the trial balance to be out of balance by an amount divisible by 2.
■■ Transposing two digits when transferring an amount to the trial balance (for example, entering $23,459 as $23,549). This error causes the trial balance to be out of balance by an amount divisible by 9.
So, if a trial balance is out of balance and the addition of the columns is correct, determine the amount by which the trial balance is out of balance and divide it first by 2 and then by 9. If the amount is divisible by 2, look in the trial balance for an amount that is equal to the quotient. If you find such an amount, chances are it’s in the wrong column. If the amount is divisible by 9, trace each amount back to the T account balance, checking carefully for a transposition error. If neither of these techniques is successful in identifying the error, first recompute the balance of each T account. Then, if you still have not found the error, retrace each posting to the journal or the T account.